Posted on: July 12, 2023, 05:18h.
Last updated on: July 12, 2023, 05:18h.
A decision by the Indian government to levy a new tax is triggering fears and warnings of a chilling effect on the country’s online gaming industry. India plans to impose a 28% tax on the funds online gaming firms, or iGaming firms, earn from their clients from each game.
The Goods and Services Tax Council, made up of federal and state finance ministers, said it has agreed to the indirect tax on online gaming, casinos, and horse racing. The council said it won’t allow any distinction between a “game of skill” and a “game of chance,” therefore closing a loophole that has allowed fantasy sports companies to justify their offerings as skill-based.
The decision drew a swift and sharp response from the iGaming industry.
Roland Landers, CEO of The All India Gaming Federation called the decision “unconstitutional (and) irrational,” and in a statement said, “It will wipe out the entire Indian gaming industry” and only benefit “anti-national illegal offshore platforms.”
The implementation of a 28% tax rate will bring significant challenges to the gaming industry. This higher tax burden will impact companies’ cash flow,” says Aaditya Shah, COO of the gaming app IndiaPlays.
The government says companies have so far paid very little tax on the fees they charge for providing real money games.
Finance Minister Nirmala Sitharaman said, “The decision to impose tax on the total amounts gaming companies collect was taken after consultation with states, and the intent was not to hurt the industry.”
What’s at Stake
Online gaming is one of the fastest-growing consumer internet businesses in India with a current valuation of roughly $1.5 billion and a mammoth growth trajectory.
India has about 659 million smartphone users. Combine the mobile users (the virtual environment) with India’s gambling industry and the country’s cricket betting business (already valued at $2 billion US), and experts are predicting the gaming market will reach $8.6 billion by 2027.
India is reportedly in the number one spot for game downloads with 15 billion last year, which is more than the US and China combined. Experts fear the tax rise will result in a growth rate reversal.
“A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry’s image and capacity to survive,” said Malay Kumar Shukla, Secretary of E-Gaming Federation in a statement.
According to Tracxn, there are well over 1,000 gaming startups in India attracting domestic and foreign investors.
The Government’s Motivation
In addition to revenue from the large investments in the online gaming industry, the government laid out other motivations for its 28% tax decision.
One of the other main reasons according to Minister Sitharaman is that although the gaming apps are supported by sports champions in India, where cricket is the most popular sport, concerns have been raised about financial losses and potential addiction.
Our intention is not to end online gaming, casino, (or) horse racing. But all these have become so complex that go this route or go that route, each route has transparency to a certain extent, but after that, it is opaque,” Sitharaman said.
The government’s explanations have so far done little to calm the storm of comments and condemnation from the online gaming sector.
