Govt announces 28% GST on online gaming, how has Web3 community reacted to this decision?
The Indian government has declared levying 28% GST on online gaming, which would be taxable at full face value.
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Highlights
- The GST Council will now levy 28% tax on online gaming
- The declaration came as a shocker for the country’s online gaming industry
On Tuesday, The Goods and Services Tax (GST) Council, held a meeting, where it was announced to impose a 28 percent tax on online gaming, casinos, and horse racing.
Union Finance Minister, Nirmala Sitharaman, as stated that the government is not targeting any specific industry and does not want to end any industry related to online gaming, casinos, and horse racing but there was discussion on the moral question of whether these should be taxed at the same rate as essential items.
In fact, the said GST rate would be levied at full face value and the effective date for the new GST rate rollout on online gaming will be done after the modifications to the law. Sitharaman has clarified that the tax on online gaming companies would be levied without making any differentiation based on whether these games are based on skill or chance.
Reactions by the online gaming community
This declaration came as a shocker for the country’s gaming industry. Businesses involved in this space have stated that the decision will hit the industry as it will affect gaming volumes and the viability of gaming companies.
GST will be detrimental for the entire gaming industry. Most gaming platforms operate within 7-15% revenue margin. A 28% margin will erode the complete margin. Web3 has already been under a lot of pressure due to government policies against crypto. This is just a double whammy for the web3 gaming industry.
Even the Chief Executive of AIGF (All India Gaming Federation), Roland Landers, is of the same opinion, mentioning the announcement to be “unconstitutional, irrational, and egregious.” He opines that the GST Council’s decision will wipe out the entire Indian gaming industry and cause several job losses and eventually benefiting the anti-national illicit platforms.
All Indian Web3 gaming companies who are registered under Indian Territorial jurisdiction will be severely impacted by this taxation. This is regressive approach and will open up doors to operate Indian market from outside India. This is not desirable state for any companies who want to contribute to Indian economy and grow within India. This is out and out regressive step and that does not mean penetration of online gaming will be stopped within Indian youth as Web3 has no territorial boundaries.
Co-founder and Co-CEO, of Games24x7, Bhavin Pandya, has stated that the decision would make the gaming industry unviable, thereby, effectively steering away consumers towards offshore and illegal platforms that pay no taxes, resulting in loss of taxes and outflow of foreign exchange.
The vision of creating a progressive digital gaming ecosystem seems uncertain in light of this decision by the GST Council. The proposed tax regime will impede the growth of India's gaming industry, which has experienced significant expansion in recent years. The Indian online gaming industry will be at a competitive disadvantage considering the fact that globally, the tax rate for online gaming is around 18%. The industry will find it difficult to attract investments, and eventually the professionals in the industry will resort to foreign platforms.
Akshay Khandelwal, Founder, Bowled.io, has stated, "This is a significant event for the online gaming industry; we can’t say it is entirely unexpected. If you consider the macro outlook, India is the youngest nation in the world (600M+ population below 25 YO) with more than 300M active gamers.
The gaming industry in India was expected to grow at 22.65% CAGR from 2022-2027. For India, online gaming is perhaps the only sector that has produced multiple profitable unicorns. The decision to further regulate the industry puts margin pressures on the incumbents and makes the traditional player economics difficult to sustain, forcing them to reconsider their business models and innovate." He added, "However, this decision presents an opportunity for the next generation of companies like ourselves to introduce newer business models. While, in the short term, it does impact everyone in the industry, including ourselves, we almost see it as the beginning of a new era for the Indian gaming industry."
In the words of Jay Sayta, Technology & Gaming Lawyer, “Since it has been decided by the GST Council that amendments have to be made to Entry 6 of Schedule III of the CGST Act to exclude online skill-based gaming from the ambit of actionable claims and correspondingly all 28 states will have to amend their state GST laws to reflect this position, it will take at least 5-6 months to bring into force this changed rate and manner of valuation of taxation for online skill gaming industry. Meanwhile, the industry will also likely be seeking interim relief from courts as and when the law is brought into force.”
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