Online gaming startups in India, including Dream11, MPL, and Games24x7, face a significant setback as the GST Council has agreed to impose a 28% tax on online gaming. After more than two years of consultations and discussions, the Council, during its 50th meeting, approved the Group of Ministers’ (GoM’s) recommendation to levy a 28% GST on online gaming, horse racing, and casinos.
No Distinction Between Skill-Based and Chance-Based Games
Finance Minister Nirmala Sitharaman, in a press conference following the Council meeting, announced that there would be amendments to the GST law to include online gaming. The new tax rate of 28% would be applicable to gross revenue or the total prize pool, without any differentiation between games of skill and games of chance. Sitharaman clarified that the focus was solely on taxation and not on categorizing games as skill-based or chance-based.
The government also intends to amend Schedule 3 of the GST Act to include online gaming in the actionable claim list. In simpler terms, an actionable claim refers to a claim of debt.
Industry Reacts Strongly to the Tax Imposition
The online gaming industry has responded vehemently to the decision to impose a 28% GST. Amrit Kiran Singh, chief strategy advisor to the founders of Gameskraft, stated that the tax would “destroy a significant portion of the successful companies” in India’s startup ecosystem. Singh highlighted the contradictory nature of the decision, given the government’s previous support for the skilled online gaming industry through various initiatives and regulatory bodies.
Roland Landers, CEO of The All India Gaming Federation, criticized the GST Council’s decision as “unconstitutional, irrational, and egregious.” He argued that the decision ignored legal precedents and unjustly categorized online gaming with gambling activities. Landers warned that the move would decimate the Indian gaming industry, result in job losses, and benefit illegal offshore platforms.
Joy Bhattacharjya, DG of the Federation of India Fantasy Sports (FIFS), expressed concerns about the industry’s irreversible damage, revenue loss, and potential job losses for skilled engineers. Bhattacharjya urged the GST Council and the Indian government to reconsider the decision, highlighting the adverse impact on foreign direct investment (FDI) and the potential shift of users to illegal betting platforms.
The decision to impose the 28% tax rate on online gaming follows discussions held by the Group of Ministers (GoM) and consultations with various states. Despite opposition from Goa, which relies heavily on the casino business for tourism, most states agreed on the tax rate. The GoM ultimately requested the GST Council to make the final decision. Sitharaman clarified that while the government supports the online gaming industry, the tax rate cannot be lower than that on essential goods.
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