Will 28% GST on Online Gaming Affect its Growth?

26-08-2023

01:21 PM

1 min read

Why in News?

At the recently concluded 50^th GST Council meeting, it was decided that online gaming would be taxed at 28% on the full-face value of the placed bets.

The Ministry of Electronics and information Technology (MeitY) in its draft regulation has defined online game “as a game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary.”
Real money online games are where the user deposits cash or kind with the expectation of earning winnings on that deposit.
These online gaming platforms can be fantasy, e-sports, or skill-based online gaming platforms.
Cards-based games such as poker or rummy are also a part of it.
India’s gaming industry is expected to become a $5 billion industry by 2025, growing at a compounded annual growth rate of 28-30 per cent.
The real-money gaming segment generated over Rs 10,000 crore in revenue in 2022.
Some of the prominent companies in the sector are Games 24*7 which also operates Rummy Circle, Dream 11, MPL, Ace2Three, Gameskraft, apart from several others.

Gaming platforms charge an entry fee from the user to allow them to participate in a particular game.
The platform operator deducts a certain amount of entry fee to run the game and the overall platform, known as the Gross Gaming Revenue (GGR). The rest is transferred to the prize pool.
For example, the entry fee is Rs 100 and the GGR is Rs 20.
Currently, online gaming platforms pay the government a GST of 18 per cent levied on the GGR. This implied the operator would have to pay Rs 3.6 as taxes.
- Besides this, TDS of 30 per cent is deducted on the winnings.
However, with the decision of taxing 28% on the entry fee itself (Rs 100), the taxation amount would be increased to Rs 28.

The high tax rate will make it more expensive for players to participate in online gaming.
- A gamer will have to pay 28 per cent GST on the amount deposited to play the game.
- Besides this, he will have to pay the platform fee and bear 30 per cent TDS on net winnings.
This could lead to players seeking out offshore or illegitimate platforms that do not charge GST, or that charge a lower rate.
This would be a major setback for the legitimate online gaming industry in India, as it would allow these offshore and illegitimate platforms to gain an unfair advantage.
The Internet and Mobile Association of India (IAMAI) said that it is deeply concerned by the GST Council’s decision to levy 28 per cent GST on the full face-value of the consideration instead of just the platform fee.
The IAMAI said that net effect of this levy will result in an approximate 1,000 per cent increase in GST on the industry and will cause irreversible damage to the $2.5 billion investments in the Indian online gaming start-up ecosystem.
Government’s Argument –
- The government is clear that this is a mechanism to discourage gambling specially by youngsters and thus the levy.
- The government has stated that it would be making suitable amendments to include online gaming and horse racing in Schedule-III of the Central Goods and Services Tax Act (2017), deeming them as taxable actionable claims.
- This will bunch online gaming together with gambling.

United States of America –
- In the US, a flat tax is deducted on earnings from e-sports and online gaming but the exact rate depends on which state you are in.
- Online gaming is usually taxed at 10 percent in most states. But 30 percent tax is imposed on any winnings through online gaming and e-sports winning.
United Kingdom –
- In the UK a variable tax slab is applied, starting at 15 percent for the first $3.5 million earned on the GGR, and going up to 50 percent for amounts over $17.8 million earned.
- While winnings on gambling are tax-free in the country, tax rates for e-sports are set at 40-45 percent.
European Union –
- The situation in the EU is slightly more complicated, but the tax rate revenue is set at 15-20 percent while taxation on winning is anywhere between 15-50 percent depending on the amount and the member state.

GST rates in India for various goods and services are divided into four slabs: 5% GST, 12% GST, 18% GST, and 28% GST.

Petrol, high-speed diesel, aviation turbine fuel, crude oil, Electricity, Alcohol used for human consumption, Natural Gas.

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