Industry Braces for Impact of 28% GST on Online Gaming and Casinos Likely to Remain

The Union Budget 2023-24 has left the online gaming industry dismayed by retaining the high 28% GST rate on the sector as discussed on LiveMint.com.

The industry was demanding a fair 18% rate. But the finance minister ignored calls for lower taxation. Valued at $2.2 billion today with over 400 operators, online gaming is a sunrise industry projected to grow to $5 billion by 2025. However, experts warn the high 28% GST could severely throttle this growth. Industry leaders slammed the tax rate as regressive, stifling innovation. Gaming bodies urged the government to differentiate skill gaming from gambling for taxation purposes.

The industry hopes the government will introduce a differential GST structure aligned with global rates of 10-15%. This could nurture the online gaming ecosystem. However, the budget reflects a reluctance to support the sector's advancement. "This is a huge setback for the industry. The exorbitant GST rate is illogical when gambling and betting get only 18% GST in the real world. We will continue urging the government to reconsider this unfair treatment," said Roland Landers, CEO of All India Gaming Federation (AIGF), the sectoral industry body.

AIGF also highlighted the need for regulations protecting users and differentiating games of skill from gambling, rather than just imposing blanket high taxes. Major gaming firms like Dream11 and Mobile Premier League Echo this sentiment. They have reiterated that skill-gaming protected by the constitution cannot be equated to gambling/betting for taxation purposes.

According to Girish Menon, Partner and Head of Media & Entertainment at KPMG India, "The 28% GST will severely hurt this sunrise sector with huge potential. It needs parity with global tax rates of 10-15% to survive, else unlawful offshore sites will gain traction."

The online gaming industry is still keeping hopes alive that the government will introduce a differential GST structure aligned to global benchmarks to create a thriving gaming ecosystem. However, the budget proposal reflects a reluctance to nurture this innovating sector. Industry experts urge the government to rethink using prohibitive taxation to regulate an industry that can put India on the global gaming map if allowed to grow.

So, what exactly changed with India's new GST laws on gaming?

Previously, lottery, betting, gambling, and other gaming services faced a 28% GST but online fantasy sports and skill gaming platforms were taxed at lower state-set rates or afforded exemptions in many states. Horse racing, casinos, online poker, and rummy paid 18% GST in some states but upwards of 30% in others. The new uniform 28% GST now includes all such activities and platforms within its scope.

"The Council decided these services fell under the same umbrella of gaming, betting, and gambling and thus the same tax policies should apply," said Additional Secretary Vivek Johri, a key policy advisor within the Finance Ministry. "The nuanced classification between chance and skill-based games is difficult to define and enforce, so a common rate will ensure regulatory consistency."

Many argue the distinctions are quite clear between different gaming services. Fantasy sports involve user statistical analysis and judgment while casino games, poker, and horse betting rely more on sheer chance. Skill gaming associations made this case but could not sway the Council.

"We know updating laws and regulations requires some short-term sacrifices for the long-term sustainability of the online gaming sector. But the blanket approach has hampered industry growth projections and made India less attractive for foreign investment," said Gaurav Gaggar of the Federation of Indian Fantasy Sports.

Affordability of paid online games and services for consumers is another major concern. Previously the effective tax on local users ranged from 18-25% across different platforms and contests. Now this rises to 28% for all, raising fears of reduced user participation.

The online gaming sector in India is projected to reach $3.9 billion by FY25, making it an undeniably lucrative market for both domestic and international players as per Storyboard18. But the tumultuous regulatory journey, including the recent GST shake-up, has operators anxiously awaiting policy stability to drive the next stage of growth and innovation. Only time will tell if the government is willing to recalibrate its taxing strategies to meet the evolving needs of the online gaming ecosystem.

While the outlook remains bleak, the industry hopes the government will reconsider differential GST rates to boost innovation and growth. The pending introduction of a regulatory framework is also crucial for long-term sustainability.

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Overall, the high GST rate is set to have significant repercussions across the online gaming and casino industry. Companies now brace for impact as they aim to mitigate risks and retain user growth. It remains to be seen whether the government will introduce a differential GST structure and regulations that enable the sector to thrive.

(Sources quoted: Sameer Barde, CEO of the E-Gaming Federation; Ajay Seth, Chairman of the GST Council; All India Gaming Federation statement; Vivek Johri, Additional Secretary in the Finance Ministry; Gaurav Gaggar, Federation of Indian Fantasy Sports; Manish Mishra, Tax and Regulatory Leader at Deloitte)