Posted on: July 12, 2023, 05:18h.
Last updated on: July 12, 2023, 05:18h.
A decision by the Indian government to impose a new tax is causing concerns and warnings about its potential negative impact on the online gaming industry. The government plans to implement a 28% tax on the earnings of online gaming firms, also known as iGaming firms, from each game played by their clients.
The Goods and Services Tax Council, consisting of federal and state finance ministers, has agreed to impose an indirect tax on online gaming, casinos, and horse racing. The council has stated that it will not differentiate between a “game of skill” and a “game of chance,” effectively closing a loophole that has allowed fantasy sports companies to argue that their offerings are skill-based.
The iGaming industry responded swiftly and strongly to this decision.
Roland Landers, CEO of The All India Gaming Federation, called the decision “unconstitutional and irrational” and stated that it would “wipe out the entire Indian gaming industry” while only benefiting “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 claims that companies in the industry have paid very little tax so far on the fees they charge for providing real money games.
Finance Minister Nirmala Sitharaman stated, “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 approximately $1.5 billion and a projected growth trajectory.
India has about 659 million smartphone users. Combining the mobile users with the country’s gambling industry and cricket betting business (which is already valued at $2 billion US), experts predict that the gaming market will reach $8.6 billion by 2027.
India reportedly ranks number one in game downloads, with 15 billion last year, surpassing the US and China combined. Experts fear that the increase in taxes will result in a reversal of the growth rate.
“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 over 1,000 gaming startups in India that attract both domestic and foreign investors.
The Government’s Motivation
In addition to generating revenue from the thriving online gaming industry, the government cited other motivations for its decision to implement a 28% tax.
Finance Minister Sitharaman explained that although the gaming apps have the support of 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 going this route or that route, each route has transparency to a certain extent, but after that, it is opaque,” Sitharaman said.
So far, the government’s explanations have done little to quell the storm of comments and condemnation from the online gaming sector.