Decode: Impact of 28% GST on online gaming platform

On August 2023, GST council has approved 28% GST rate on online gaming, casino’s and horse racing. Now apart from 28% GST tax, the other key thing to understand here is “online gaming’.
This decision has had a significant impact on the gaming industry in India. In reply to that the letter underlying an urge to reconsider 28% GST has been addressed to the PMO, Ministry of Electronics and Information Technology, among others, was signed by Nazara Technologies, MPL, and WinZO Games, among others.

Online Gaming is too broad term which includes both real money and non-money games. Online gaming carries a different meaning in Indian jurisprudence compared to the global understanding, leading to confusion among investors community, gamers, game publishers, and media during the GST row.

Video games themselves have long been taxed at 18%, and the government has clarified that the 28% GST is levid only on deposits for ‘online gaming’ i.e, real-money gaming industry or skill-based games. Real-money gaming predominantly includes poker, slot machine or casino table games, lottery, sports betting, sports wagering, bingo, fantasy sports in any form, skill-based games or any other wagering activity or through any medium including land-based, mobile-based or internet that provides to a player an opportunity to receive the payment of cash or anything else that can be redeemed for cash or cash equivalents.

Hence, the latter industry (real-money gaming) has fervently opposed the 28% GST that was slapped on deposits, arguing that users would be discouraged from playing if they had to pay 28% over and above what they were playing games like poker with.

Real-money Gaming	Video Gaming
Dream 11	Nazara technologies
Fantasy akhada	Delta Corp
MPL
WinZo games

Let's understand the changes with the help of a chart:

Basis	Before - 18% GST	After - 28% GST
Payable Tax	Companies had to pay 18% GST	Companies have to pay 28% GST
Tax Levied on	Tax levied on Gross Gaming Revenue	Tax levied on Total Game Value for online gaming, horse racing & casinos
TDS Levied	30% TDS on Net winning	30% on Net winning
Example	Bet Amount = Rs. 100  (Inc. Rs.20 of Platform fee) GST Rate= 18% GST Amount Payable= Rs. 3.60	Bet Amount = Rs. 100  (Inc. Rs.20 of Platform fee) GST Rate= 28% GST Amount Payable= Rs. 28
Decrease in Retained Earnings	Amount Retained= 100.00  - 20.00 -   3.60 = Rs. 76.40 Besides this, an additional 30% TDS from winning	Amount Retained= 100.00  - 20.00 - 28.00 = Rs. 52.00 Besides this, an additional 30% TDS from winning

Another impact of the 28% GST is that it has made it more difficult for gaming companies to operate in terms of finance in India. The high tax rate means that gaming companies have to charge more for their products and services. Additionally, the high tax rate can make it difficult for gaming companies to raise capital, as investors may be less willing to invest in a company that is subject to such a high tax burden.

In addition to the above, here are some other potential impacts of the 28% GST on the gaming industry:

· Increased use of offshore gaming platforms: Some gamers may switch to offshore gaming   platforms that are not subject to the 28% GST. This could lead to a loss of revenue for Indian Online   fantasy gaming companies.

· Increased use of unlicensed gaming platforms: Some gamers may turn to unlicensed gaming   platforms that do not charge GST. This could pose a risk to gamers, as these platforms may not be   regulated by the government.

· Reduced investment in the gaming industry: The high GST rate could discourage investment in   the gaming industry. 28% GST on online real-money gaming could lead to a potential write-off of the $2.5 billion in capital invested. This could lead to a slowdown in the development of new games and technologies.

· Loss of jobs: The gaming industry employs thousands of people in India. The high GST rate could   lead to job losses in the industry. Companies like MPL have laid off 350 employees and Rush   Gaming Universe (Hike) has also laid off 55 staffers.

· Operational difficulties: The tax will increase the costs of doing business for gaming companies,   which could lead to higher prices for consumers. A few smaller-scale gaming startups, such as   Quizy,  have already announced their cessation of operations.

· ​Impact on FDI: As per the Federation of India Fantasy Sports (FIFS), the decision is expected to severely impact the $2.5 billion of FDI (foreign direct investment) already invested and jeopardise potentially any further FDI in the industry.

The 28% GST is a complex issue with far-reaching implications for the gaming industry in India. It is still too early to say what the long-term impact of the GST will be, but it is clear that it has had a negative impact on the industry in the short term.