Online Gaming Industry Seeks Clarity on GST Rates, Hopes for Progressive Government Policy

Online Gaming Industry Seeks Clarity on GST Rates, Hopes for Progressive Government Policy

An economic segment in constant growth, India’s online gaming market brings tax revenues, jobs and improves the tech startup climate. If indirect taxes like GST were to be raised to unsustainable levels, however, the industry will lose its edge and fall victim to black markets and offshore competition, experts warn.

Heavy Handed GST Rates Will Damage the AVGC Branch

Recent news of an upcoming GST hike has upset the online gaming industry in India, prompting calls for a better calibrated approach towards one of the nation’s sunrise economic sectors. Currently, the 18% indirect levy on Gross Gaming Revenue (GGR) is considered as the highest possible that gaming startups can bear. Raising it to 28% and, more importantly, based on total turnovers and not platform fees (or GGR) will put most of India’s online gaming out of business, industry advocates insist.

The GST council has tasked a Group of Ministers (GoM) with reviewing the possibility of imposing 28% GST on all paid gaming, be it a fantasy sports platform or an online roulette in India. What was previously the main distinction between skill and casual gaming and legal gambling is about to be erased in a new “one-size-fits-all” policy that would be detrimental to the entire business ecosystem.

The online and mobile gaming industry is widely referred to as the animation, visual effects, gaming and comics sector (AVGC), with important spillover effects into job creation, tax revenues and investment prospects into Indian online technology. The dangers of raising its tax burden are evident to most digital market analysts – from non-compliance to tax revenue leakage, as well as uneven competition by grey markets and offshore operators.

Clipping the Wings of a Growing Segment

Online gaming in India has yet to find its feet after a period of legal uncertainty and fragmented state and national policy. The market’s potential, nevertheless, has put it firmly among the world’s fastest growing players and industry executives are hoping that proper regulation and fair taxation would support them to market maturity.

International good practices and successful licensing regimes reveal both the benefits of careful policy planning as well as the dangers of excessive restrictions. Black market operators and unlicensed gaming platforms are always ready to take advantage of complex laws or burdensome financial conditions, luring players with cheap entry fees and easy online access.

In-depth industry studies indicate that mobile gaming, multiplayer platforms and online lottery sites have posted double digit growth for several years in a row, making it one of the most invested segments in Indian tech. Despite the low average fees and ticket prices (around Rs 25 to 35), skill gaming for real money has become a favorite pastime for over 400 million players in the Union and is projected to pass $5 billion by 2025.

To realize its growth potential, mobile gaming needs conducive legislation and sparing tax burdens, EY India experts agree. On the contrary, unclear gaming regulations (including anti money laundering laws) and high tax rates stimulate tax evasion, offer less consumer protection and ultimately damage the economic niche and its supporting tech businesses. Many players might even turn back to offline and back-alley black markets which will completely render the market invisible to tax authorities and will take proper jobs away from the market.

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