A joint report of the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and the professional services company Earnest & Young (EY) has urged the government to consider an optimal tax structure for the benefit of the online gaming industry amid plans to raise the Goods and Services Tax (GST) from 18 per cent to a whopping 28 per cent.
The report titled ‘GST On Online Skill Based Gaming’ has warned that higher GST rates could lead to a sharp drop in online gaming users in India.
The group of ministers (GoMs) of the GST council is currently examining a proposal about levying up to 28 per cent GST on the full contest entry amount, including the prize pool.
The current GST rate for the online gaming industry is 18 per cent. The industry body said that a sharp GST hike could “have an adverse effect” in the business.
The online gaming industry contributed over Rs 2,200 crore worth of GST in 2022. The winning amounts from online games are also subject to income tax. The report noted that the industry contributes a significant amount, both directly and indirectly, to the exchequer.
“Levy of GST on the contest entry amount would increase the tax burden on the nascent industry by 10 to 20 times. The industry currently pays GST at the rate of 18 per cent on the platform fee or the gross gaming revenue (GGR) earned directly by the gaming operators,” ASSOCHAM said in a release.
Deepak Sood, secretary general of ASSOCHAM, said, “The growth of the online gaming industry comes as no surprise as it's largely youth-driven and has been fuelled by the increasing usage of internet and smartphones, especially during the pandemic.”
The report argues that a GST of 28 per cent from the existing 18 per cent and 30 per cent income tax on winning customer’s corpus could take the taxation rate on online gaming between 45 per cent and 50 per cent.
“With the GST tax proposal leading to higher taxation, it could lead to a decline in active users and discourage domestic gaming industries,” the report noted.
According to the report, some 500 gaming companies are operating in India, with a total inflow of foreign direct investment (FDI) worth $2.7 billion.
The sector could also help facilitate the government’s vision for the animation, visual effects, gaming and comic sector and “encourage domestic players rather than driving users to foreign companies; thereby enhancing revenue collection,” it said.
