India Demands $12 Billion from Online Gaming Operators
Posted on: October 26, 2023, 07:39h.
Last updated on: October 26, 2023, 07:39h.
India recently implemented a 28% Goods and Services Tax (GST) on online gaming operators targeting the country. Now, the Indian government is demanding INR1 trillion (US$12.03 billion) in unpaid taxes from these operators.
Reuters reported on this staggering demand, with state officials stating that operators must pay to avoid being blacklisted. Despite the fact that the 28% tax rate was only introduced two months ago, the government is determined to collect.
The reaction from online gaming operators targeting India remains unknown. However, several operators have already left the market, suggesting that a mass exodus is likely.
Uniform Tax Rate
All online gaming operators, regardless of whether the games require skill or luck, will be subject to the same 28% GST rate. Online gaming falls under the revised Central Law on Goods and Services, which includes a wide range of online games and gambling activities. This includes games where individuals place bets, whether monetary or virtual, with the aim of winning more money or assets.
Amendments have been made to the Integrated Goods and Services Act, requiring offshore online gambling providers to charge GST to their Indian users. Online gambling corporations need to assess their tax circumstances and update their Enterprise Resource Planning (ERP) and tax calculation systems to comply with the new GST regulations.
However, with the worth of India’s online gaming industry estimated at INR135 billion (US$1.62 billion) in 2022, it is unlikely that the government will see anywhere near the amount it is demanding.
Despite India’s attempts to justify the demand, the revenue simply doesn’t exist to support it. It is more feasible and cost-effective for operators to leave the market rather than meet the outrageous demand.
Challenging Changes
Gaming companies, which will soon have limited gaming options, argue that they have already paid 18% GST in platform fees for each game. However, the government believes that these fees represent only a small fraction of the actual revenue earned.
As a result, the GST Council has implemented significant changes to the online gaming taxation system. All online gaming activities, regardless of skill or chance, will now be subject to a flat 28% GST rate under the new system.
In contrast, the previous system had varying GST rates based on the type of online game. Games that required skill, such as rummy or fantasy games, were subject to a moderate 18% GST rate. Games based purely on luck, such as gambling and sports betting, faced the higher 28% GST rate.
However, it is likely that India will not see a significant portion of the GST in the future. Many operators are expected to find ways to operate outside the regulated and taxable market.