Online gaming industry says 28% GST makes operations unfeasible

• The GST Council has levied a 28% rate to casiones, horse racing, etc on the amount the gaming company earns from its users.
  
• The GST Council has recommended removing the critical distinction between game of skill and game of chance.
  
• The decision is expected to hit the online gaming industry hard and the shares of listed players has taken a nosedive.
  

The online gaming industry woke up expecting a bad day on Dalal Street after the 50th GST Council announced its decision to levy a 28% GST on online gaming, along with horse racing and casinos. As expected, shares of listed players like Nazara Tech and Delta Corp took a major hit with the latter nosediving 20%.

The online gaming industry stakeholders have termed the 28% GST on the full value of gaming as "irrational and egregious", saying that the move is a self goal that will kill the skilled online gaming sector in the country.

But first, what is the dispute

The main debate has been about online gaming categorisation, whether it is a game of skill or a game of chance.

“The Government is saying that if it is a game of chance, it will come under the category of betting, gambling, so there will be a GST of 28% on the gross value. The industry is saying that it is a game of skill and should be liable to18% GST, not on the gross value, but only on the commission component,” explains Pratik Jain, Partner, PwC India, a professional services firm.

Roland Landers, CEO of the All India Gaming Federation, said that the decision ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities.

"We believe this decision by the GST Council is unconstitutional, irrational, and egregious. 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," reads his statement.

The impact on the online gaming industry

Experts and gaming company owners agree that this is going to adversely impact the gaming industry in a major way.

“It will be interesting to see the business impact for the online gaming sector considering that this sector has been touted to have significant growth potential,” says Shilpy Chaturvedi, Partner, Deloitte India, a professional services firm.

Joy Bhattacharjya, Director-General, Federation of Indian Fantasy Sports (FIFS), says that as pointed out by FIFS and many of its members on numerous occasions, change in valuation to tax on the total consideration will cause irreversible damage to the industry, loss of revenue to the exchequer and loss of employment for lakhs of skilled engineers.

“The decision will have a chilling effect on the $2.5 billion of FDI already invested by investors and jeopardise potentially any further FDI in the sector. Further, this decision will shift users to illegal betting platforms leading to user risk and loss of revenue for the government,” says Bhattacharjya.

Experts say that the higher tax burden will also put a blocker on India’s expanding gaming industry, and deter the new player from entering the industry.

Industry insider, Mitesh Gangar, the co- founder and director of PlayerzPot, a fantasy gaming company, says that the move will corner the gaming industry in a big way.

“The overall operations will not be feasible. The high tax burden will completely restrict the cash flow, limiting a company’s ability to invest in research, innovation, expansion or survival,” he said.

The government on its part has said that the move isn’t targeting any particular industry. Finance Minister Nirmala Sitharaman said, “The decisions were intensive and were taken after consultation with all the members, including those representing states like Goa and Sikkim where casinos form a key part of the tourism sector."