The GST tax on all paid online games – a sunrise sector of global proportions – is about to be raised to 28%, pricing out much of the domestic market and rendering the business unsustainable for India’s tech companies.
Gaming Industry Associations: Exorbitant Taxes Killing a Thriving Business
A Group of Ministers recommended in late June that the goods and services tax (GST) on online games be raised across the board from the current 18% slab to the highest possible, 28%. The GST Council is yet to make a final ruling but it looks like a foregone conclusion.
Industry advocates have repeatedly gone on record with calls for the Ministers to reconsider the move, calling it “catastrophic” for India’s thriving gaming business. The issue, for them, more than the rate itself is the taxable base, set to be extended to the entire player turnover value rather than the gross gambling revenue (GGR), known as the platform fee.
The new GST rate would not only be applicable to Indian casino online, lottery, horse racing bets, and card favorites like poker or rummy. It is set to cover all gaming products including casual in-app purchases, prize pools, peer competitions, and any paid online entertainment related to gaming.
In effect, this would raise costs for the final user – be those player fees, online lottery tickets, deposits, subscriptions, etc. – or force gaming platforms to give out smaller prize pools. This puts at risk not only the most loyal player bases but the entire business model, making Indian operators less attractive than top foreign competition.
The fact that all three major lobby associations in India (covering 90% of gaming companies in the Union!) have come together to share their concerns is something unprecedented. The All India Gaming Federation (AIGF), the E-Gaming Federation (EGF) and the Federation of Indian Fantasy Sports (FIFS) issued a joint statement pointing out the shortcomings of the proposal and the dire impacts it would have on the industry.
Market experts say the rash move is against good governance practices and common principles of fair taxation. In the end, they are convinced it would stifle India’s online gaming sector, damaging the interests of over 400 million desi gamers and hundreds of tech startups within the ecosystem. Sending the players over to offshore competition will cut off any tax proceeds in the long run, the industry bodies conclude.
Mobile Gaming: Premium Consumption or Mass Entertainment Choice?
The GST Council has asked the Ministers to examine any feedback and potential issues raised by States before reconvening with a final decision. More than miscommunication, the question is whether there are precise financial calculations behind the idea or it is the result of purely political and moralistic impulses.
Both games of skill and legal games of chance are administered by operators that charge a fee for their services. The “rake” or commission – averaging 3% according to industry sources – supports the entire business model. Raising it more than 9 times (with additional 28% on top of the total participation price) will make it plainly unsustainable for most players.
Moreover, gaming platforms are also used for education purposes, professional learning, and knowledge transfer. Online and mobile games are often pre-installed and have turned into an outlet for a third of the nation, with games played between daily chores or among colleagues and family members.
The gaming market is yet to reach its potential but India has already topped the rankings of monthly game app downloads and is stably among global market leaders. Any changes in the balance should be done with attention and deeper industry knowledge. If policymakers fail to listen to input from the very business leaders, things are bound to go wrong at some point. In today’s dynamic global markets it is hardly a good idea to tank an entire tech sector over a hasty decision of the kind.