New Policy on On-line gaming, to witness degrowth

Online gaming is now seen as a mainstream source of entertainment for people across the globe. The Indian gaming market is expected to grow from $2.8 billion in 2022 to $5 billion in 2025, growing at a CAGR of 28-30%. India’s online gaming industry is growing at $3 billion with more than 400 million users, at present.

While the online gaming startup industry (not gambling or betting) was already paying 18% GST on the platform fee/commission, the GST Council has unfortunately chosen to apply 28% GST on the total amount. This can cause irreversible damage to the industry, loss of revenue to the exchequer, loss of employment for lakhs of skilled engineers in this sector. This decision will have a chilling effect on the $2.5 billion of FDI already invested and jeopardise potentially any further FDI in the sector.

Further, this decision will shift users to offshore platforms leading to loss of revenue for the government. With this the Offshore platforms are to gain at the cost of Indian online gaming companies. The GST will be levied on the gross revenue or total prize pool. This means that online gaming startups will now have to pay a higher GST rate of 28% on the platform fee/commission of around 10%. It means 38% of Rs.100 has gone. One has to play with Rs.62.

With this, it’ll discourage people from playing online games, which will have a negative impact on the industry as a whole and this decision by the government has caused some uncertainty and concern among industry stakeholders. Further, it will shift users to illegal betting platforms leading to user risk and loss of revenue for the government.

Now it is the responsibility of the FinMin India and the GST Council to clarify the manner of levy for online gaming companies as levy is possible only on the service bit which is platform fee and not on whole amount which is neither service nor a good, as per the India tech , policy experts in the gaming industry.

This also makes the commendable policy efforts undertaken by Meity for the Indian startup online gaming sector infructuous. At least those online games that would be covered through the MeitY route should be kept out of this levy on total amount and 28% applied only on platform fee.

Finally, the tax imposition was “detrimental” and is completely against the vision of the government to promote online gaming. It is now important for the industry to adapt and explore creative solutions to navigate these challenges.

S Mohini Ratna, Editor, VARINDIA