Online gaming

28% GST on online games? Industry believes May 18 could be ‘Doomsday’

May 18 could be D-Day for the online gaming industry. Specifically, for the real money gambling arena that operates in India in various “skill-based” forms like fantasy cricket, rummy, poker, roulette, ludo and even snakes and ladders! (More sports news)

For years, the Center has diverted the issue of gambling/betting to the states under which the issue falls under the Constitution. Online gambling has been discussed several times in both Houses of Parliament. In December 2021, Vice President Venkaiah Naidu even referred to skill-based games as “killing games” in the Rajya Sabha.

But government agencies like the Niti Aayog made only half-hearted efforts to bring the gambling industry online and ensure that the common man was not fooled into playing online games with high stakes. . Niti Aayog nearly gave fantasy sports a boost but received an ‘objection’ from major online gambling operators. The case even reached the Prime Minister’s office.

Unstoppable!

This “indulgent” and laid-back approach has only made game operators bold. Surfing on court orders and the huge gray in the interpretation of games of “skill” versus “chance”, real money gambling operators have continued to beat with freedom, impunity and therefore, a huge slice of arrogance.

Some of India’s biggest celebrities like cricketing superstars MS Dhoni, Sourav Ganguly and Virat Kohli continue to promote online games played with stakes. Bollywood celebrities like Shah Rukh Khan, Varun Dhawan, and Shraddha Kapoor also endorse gambling apps in a big way.

Top real money game operators like Dream11, Winzo, MPL, My11Circle spend big on cricket and work closely with the teams playing in the Indian Premier League. Due to cricket being played all year round, they manage to attract a lot of attention through huge media spend, especially on TV and digital mediums.

More importantly, offshore betting companies have emerged during IPL 2022 and offer innovative ways to win cash prizes. Indian game companies see them as a major threat. This is another area of ​​concern for the government.

Game changer?

On May 18, the dynamics of online gambling operations may change. If the taxation rules are passed, it will have a serious impact on desi businesses.

The Group of Ministers (GoM) set up by the Union Finance Ministry to review the Goods and Services Tax (GST) is set to endorse a recommendation that casinos, racetracks and online gambling should fall under the slab of 28% GST. .

The GoM is a powerful body composed of eight powerful ministers, headed by Chief Minister of Meghalaya Conrad Sangma. The GOM’s suggestions are generally not challenged by the GST Council which is headed by Union Finance Minister Nirmala Sitharaman and includes finance ministers from all states and union territories.

Online gaming companies currently pay 18% GST on gross gaming revenue (GGR) or the commission charged by platforms to players. The GoM has proposed that GST be charged on the total amount of the competition. Indeed, platform owners will have to pay around six to ten times what they are currently paying. The larger the operator, the higher the GST they will pay. Small operators will find this unsustainable.

Debate

“We believe that imposing 28% GST, if done, on a sector with such potential will take away the viability of many businesses operating in the ecosystem. Second, Indian gaming companies have attracted direct investment unprecedented $1.6 billion foreigners between August 2020 and September 2021,” says Saumya Singh Rathore of Winzo, the team sponsors of Kolkata Knight Riders in IPL 2022.

“The imposition of a 28% GST could act as a deterrent to the entry of big-name global players. ‘address’ and gambling or ‘gambling’. Therefore, online games and casinos/racetracks should never be painted with the same brush,” Rathore added.

Jay Sayta, who specializes in gambling policy issues, disagrees.

“The online gaming industry should be prepared to pay its fair share of taxes to the national treasury and contribute to nation building. The 28% tax on gross gaming revenue or platform fees form levied by gambling companies is reasonable given that several other industries including automotive, cement, soft drinks, etc. also pay the highest tax bracket,” says Sayta.

“However, taxing contest entry fees or the value of bets may not be reasonable and lead to tax evasion, parallel black market and closure of many businesses. The right approach would be to keep the tax at 28% on the platform fee, not the entry fee,” Sayta adds.

Nation building!

Nation building is paramount in the minds of large operators like MPL. While the proposed 28% GST will certainly pinch their business, MPL is already using its large player base to educate women on social issues like trafficking.

“We are happy to contribute to nation building. With games expected to reach $5 billion in revenue by 2025 and multiple unicorns in the industry, we hope the government will create a fiscal framework that promotes a sustained growth in this sector,” says Dibyojyoti Mainak. of the MPL.

But the online gaming industry widely views the 28% GST slab as a major hurdle.

“The most important and critical aspect is the valuation which we believe should be based solely on the GGR methodology. Not only will this be in line with globally accepted practices, but it will also help companies registered in India and prevent players from switching to offshore black market operators who pay no tax here,” said Roland Landers, CEO of the All India Gaming Federation, a powerful body bringing together online gaming operators.

“Black market operators will siphon off revenue from legitimate operators who pay taxes, opening the door to money laundering and funding other illegal businesses. Additionally, gaming platform operators will not be able to prosecute their operations to a significant level. Growth, innovation, employment opportunities, government revenues and, above all, responsible and safe gaming will be significantly impacted,” observes Sameer Barde, CEO of the E-Gaming Federation.

BCCI’s fantasy

Fantastic operators could face immediate heat. They invested heavily in cricket and the BCCI gave them a free run although they said they were against ‘real money gambling’. BCCI Chairman Ganguly is the brand ambassador for a fantasy cricket company that is now sponsoring the T20 women’s version of a mini-IPL. This fantasy cricket app is part of a gaming platform that offers rummy among other real money games.

BCCI did not respond to questions whether the 28% GST slab will impact its “business” with gaming companies, which are firmly entrenched in the cricket ecosystem. It’s also unclear how the BCCI differentiated fantasy cricket operators from rummy or poker operators, as court orders are still not entirely conclusive, according to lawyers operating in the gambling space.

This is clearly not good for the online gambling industry. In a conservative society that sees money spent on everything going down the drain more often, a higher tax bracket may be the government’s way of discouraging the common man from risking their lives in a ‘sport’ which has many shades of gray.