Explained | How will 28% GST on online gaming impact the industry?

India's gaming industry is projected to become a $5 billion industry by the year 2025, with the industry witnessing a compounded annual growth rate of 28-30%.

The Goods and Service Tax Council, on Tuesday, agreed to impose GST of 28 per cent on online gaming, horse racing and casinos. The tax will be levied on the full value of the bet made or the chips bought and there will be no differentiation between skill-based games and chance-based games.

What is online gaming and how has it fared in the country?

In its draft regulation, the Ministry of Electronics and Information Technology defined online gaming as a "type of gaming that is offered online and is accessible through a computer resource or an intermediary."

India's gaming industry is projected to become a $5 billion industry by the year 2025, with it witnessing a compounded annual growth rate of 28-30 per cent.

Also Read: India's online gaming firms warn of 'devastating' GST hike impact

Currently, the online gaming companies pay a GST of 18 per cent which is levied on the Gross Gaming Revenue (GGR). Along with this, a TDS of 30 per cent is deducted on the winnings.

Now, however, with the Centre's decision of levying 28 per cent GST on the total game value for online gaming, a gamer will have to pay 28 per cent GST on the amount they have deposited on the game. Along with this, the user will be made to pay the platform fee and bear 30 per cent TDS on net winnings.

How will this impact the industry?

The tax levy would mostly lead users to look out for offshore or illegitimate platforms which do not charge GST. This would cause the industry dearly and could prove disadvantageous as well. This could may as well have several negative consequences, including loss of revenue for the government.

Experts said the decision, based on the recommendations of a Group of Ministers, could be a death-knell for the online gaming industry.

“Ignoring the long-time demand of the gaming industry, levying a 28 per cent tax rate on the gaming industry will be a big setback for Indian players. We might immediately see notices being issued to the gaming players for differential tax and with this new series of litigation,” said Ankur Gupta, Practice Leader - Indirect Tax at SW India.

“In most countries the online gaming industry is taxable more or less at par with the current taxability of 18 per cent, therefore, it's a disadvantage for Indian game companies if the taxability moves to 28 per cent,” Gupta said.

Also Read: Online gaming firms relocating to avoid tax will be 'risky'

"We believe this decision by the GST Council is unconstitutional, irrational, and egregious. The decision ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities. This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses and the only people benefitting from this will be anti-national illegal offshore platforms,” said Roland Landers, CEO, The All India Gaming Federation.

How has it impacted the industry so far?

Shares of Indian online gaming firms Nazara Technologies, Onmobile Global, and Delta Corp slid on Wednesday, a day after the government imposed a 28 per cent tax on the funds collected by online gaming companies from customers.

Shares of Nazara Technologies and Onmobile Gaming fell as much as 14.2 per cent and 8.9 per cent before they trimmed some losses. Delta Corp slipped 10 per cent to hit its lower circuit.

(With inputs from DHNS, agencies)