Ahead of Saturday's GST council meeting, report says high taxes impacted skill-based online gaming industry

The GST council is likely to consider an amendment to the Goods and services tax Act to quash retrospective tax demands. The proposal was suggested by law committee, to address tax notices, where lower taxes were paid due to interpretation issues or lack of clarity in the law.

Ahead of the Goods and Services Tax (GST) Council meeting on June 22, which may provide relief to the online gaming industry on retrospective tax demands, a new report has pointed out the impact of the Revised GST regime on pay-to-play online skill gaming. Fantasy games, card games, and casual games are among those adversely impacted by the imposition of a flat 28 per cent GST on them, says the report by Ernst & Young (EY) and the US-India Strategic Partnership Forum (USISPF).

The upcoming GST council meeting is likely to consider an amendment to the Goods and Services Tax Act to quash retrospective tax demands. The proposal was suggested by the law committee, to address tax notices, where lower taxes were paid due to interpretation issues or lack of clarity in the law. In the fiscal year 2023-24, the Directorate General of Goods and Services Tax Intelligence (DGGI) detected 6,323 cases of tax evasion amounting to approximately Rs 1.98 lakh crore. Of these, the online gaming sector had the highest number of tax evasion notices, totalling over Rs 1 lakh crore.

If accepted, the amendment to the GST Act could pave the way for not recovering retrospective GST on e-gaming, casinos and horse racing. Industry players have raised concerns over the ambiguous nature of last year's decision to levy this rate of GST on the sector.

According to the EY-USISPF report, before the revision of GST, taxes constituted approximately 15.25 per cent of revenue for gaming companies. However, post the October 2023 amendment, GST now accounts for 50-100 per cent of revenue for a third of the sector's entities, rendering many operations financially unviable.

Startups, in particular, find themselves operating at a loss due to this tax burden, stifling growth and innovation. The report says, the economic repercussions extend to funding challenges, with the sector witnessing a freeze in capital influx since the implementation of new GST rates.

It also cites a withdrawal of global investors from the market as soon as the revised tax regime took effect, exacerbating the funding crisis. Job losses have also been a direct consequence, with companies reporting layoffs and a freeze on hiring in specialist roles such as technology, product development, animation, and design.

This downturn in employment prospects underscores the broader impact of the GST revision on the industry's sustainability and ability to attract talent. In response to these challenges, industry stakeholders have advocated for a revision in the GST framework, proposing a shift from taxing total deposits to Gross Gaming Revenue (GGR) or platform fees.

Such a move, they argue, would align India's taxation policies with global standards and alleviate the burden on gaming companies, thereby promoting growth and compliance. Bipin Sapra, Tax Partner, EY India, said, "Skill-based online money gaming industry has been impacted by the high levels of taxation under the GST regime. Considering the adverse effects of this taxation on industry growth, the survey of gaming companies shows that most companies prefer that the GST should be applied to either the Gross Gaming Revenue or the platform fee for the industry to reach its potential.

He added, "This adjustment would foster sectoral growth and prevent revenue leakage. This approach recognizes that the true value of taxable supply is the platform fees, which cover the services provided by the gaming platforms, while the remaining amount contributes to the prize pool for winners". Dr Mukesh Aghi, President & CEO USISPF, said, "In aligning with global practices, India should clearly distinguish between games of skill and games of chance for online gaming taxation and regulation. India can benefit from this approach by bringing in new-age technologies and investments from across the world.

He added, "Our study indicates that the impact is concentrated in real-time games limited to fewer players where the business models are still evolving. The gaming sector needs support to grow and bring out the best possible efficiencies." (ANI)

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)