New Delhi [India], ahead of the Goods and Services Tax (GST) Board meeting on June 22, which may provide relief to the online gaming industry in retrospective tax demands, a new report has pointed out the impact of the revised GST regime on Paid Online Skill Games.
Fantasy games, card games and casual games are among those negatively affected by the imposition of a flat 28 percent GST, says report by Ernst & Young (EY) and the US Strategic Partnership Forum and India (USISPF).
The next GST council meeting is likely to consider an amendment to the Goods and Services Tax Act to quash retrospective tax demands. The proposal was suggested by the legal committee to address tax notices, where lower taxes were paid due to problems of interpretation or lack of clarity in the law.
In fiscal year 2023-24, the Directorate General of Goods and Services Tax Intelligence (DGGI) detected 6,323 cases of tax evasion worth around Rs 1.98 lakh crore. Of these, the online gaming sector had the highest number of tax evasion notices, totaling over Rs 1 lakh crore.
If accepted, the amendment to the GST Act could pave the way for no recovery of retrospective GST on electronic gaming, casinos and horse racing.
Industry players have raised concerns over the ambiguous nature of last year's decision to impose this rate of GST on the sector.
According to the EY-USISPF report, before the GST revision, taxes constituted approximately 15.25 percent of gaming companies' revenue.
However, after the October 2023 amendment, GST now accounts for between 50 and 100 percent of the revenue of a third of entities in the sector, making many operations financially unviable.
Startups, in particular, find themselves operating at a loss due to this tax burden, stifling growth and innovation.
According to the report, the economic repercussions extend to financing challenges, with the sector having witnessed a freeze in capital inflows since the implementation of the new GST rates.
It also cites a withdrawal of global investors from the market as soon as the revised tax regime came into effect, exacerbating the funding crisis.
Job losses have also been a direct consequence, with companies reporting layoffs and a hiring freeze in specialized roles such as technology, product development, animation and design.
This drop in employment prospects underlines the broader impact of the GST revision on the sustainability of the industry and its ability to attract talent.
In response to these challenges, industry stakeholders have advocated for a review of the GST framework, proposing a shift from taxing total deposits to Gross Gaming Revenue (GGR) or platform fees.
They maintain that such a move would align India's tax policies with global standards and ease the burden on gaming companies, thereby promoting growth and compliance.
Bipin Sapra, Tax Partner at EY India, said: "The skill-based online gambling industry has been affected by the high levels of taxes under the GST regime. Considering the adverse effects of these taxes on growth industry, the survey of gaming companies shows that most companies prefer GST to be applied to gross gaming revenue or platform fee for the industry to reach its potential.
He added: "This adjustment would encourage sectoral growth and prevent revenue leakage. This approach recognizes that the true value of the taxable supply is the platform fees, which cover the services provided by gaming platforms, while the amount remaining contributes to the winners' prize pool.
Dr. Mukesh Aghi, President and CEO of USISPF, said: "Aligning with global practices, India should clearly distinguish between games of skill and games of chance for taxation and regulation of online gaming. India can benefit from this approach incorporating new age technologies and investments from around the world.
He added: "Our study indicates that the impact is concentrated in real-time games limited to fewer players, where business models are still evolving. The gaming sector needs support to grow and achieve the best possible efficiencies." .
Fantasy games, card games and casual games are among those negatively affected by the imposition of a flat 28 percent GST, says report by Ernst & Young (EY) and the US Strategic Partnership Forum and India (USISPF).
The next GST council meeting is likely to consider an amendment to the Goods and Services Tax Act to quash retrospective tax demands. The proposal was suggested by the legal committee to address tax notices, where lower taxes were paid due to problems of interpretation or lack of clarity in the law.
In fiscal year 2023-24, the Directorate General of Goods and Services Tax Intelligence (DGGI) detected 6,323 cases of tax evasion worth around Rs 1.98 lakh crore. Of these, the online gaming sector had the highest number of tax evasion notices, totaling over Rs 1 lakh crore.
If accepted, the amendment to the GST Act could pave the way for no recovery of retrospective GST on electronic gaming, casinos and horse racing.
Industry players have raised concerns over the ambiguous nature of last year's decision to impose this rate of GST on the sector.
According to the EY-USISPF report, before the GST revision, taxes constituted approximately 15.25 percent of gaming companies' revenue.
However, after the October 2023 amendment, GST now accounts for between 50 and 100 percent of the revenue of a third of entities in the sector, making many operations financially unviable.
Startups, in particular, find themselves operating at a loss due to this tax burden, stifling growth and innovation.
According to the report, the economic repercussions extend to financing challenges, with the sector having witnessed a freeze in capital inflows since the implementation of the new GST rates.
It also cites a withdrawal of global investors from the market as soon as the revised tax regime came into effect, exacerbating the funding crisis.
Job losses have also been a direct consequence, with companies reporting layoffs and a hiring freeze in specialized roles such as technology, product development, animation and design.
This drop in employment prospects underlines the broader impact of the GST revision on the sustainability of the industry and its ability to attract talent.
In response to these challenges, industry stakeholders have advocated for a review of the GST framework, proposing a shift from taxing total deposits to Gross Gaming Revenue (GGR) or platform fees.
They maintain that such a move would align India's tax policies with global standards and ease the burden on gaming companies, thereby promoting growth and compliance.
Bipin Sapra, Tax Partner at EY India, said: "The skill-based online gambling industry has been affected by the high levels of taxes under the GST regime. Considering the adverse effects of these taxes on growth industry, the survey of gaming companies shows that most companies prefer GST to be applied to gross gaming revenue or platform fee for the industry to reach its potential.
He added: "This adjustment would encourage sectoral growth and prevent revenue leakage. This approach recognizes that the true value of the taxable supply is the platform fees, which cover the services provided by gaming platforms, while the amount remaining contributes to the winners' prize pool.
Dr. Mukesh Aghi, President and CEO of USISPF, said: "Aligning with global practices, India should clearly distinguish between games of skill and games of chance for taxation and regulation of online gaming. India can benefit from this approach incorporating new age technologies and investments from around the world.
He added: "Our study indicates that the impact is concentrated in real-time games limited to fewer players, where business models are still evolving. The gaming sector needs support to grow and achieve the best possible efficiencies." .
