“Revenue from online gaming has increased 412 percent reaching ₹6,909 crore in six months,” Sitharaman said, adding that revenues of casinos have “jumped by 30%.”
Online games, including skill-based and chance-based, were placed in the 28 percent GST slab in the 50th GST meeting in July 2023. It came into effect from October 1, 2023. Earlier, skill-based games were taxed at 18 percent.
This is in addition to the tax on winnings from different gaming tournaments that are either in the form of cash or gift prize. As per the income tax law, these winnings are treated as winnings from online games and taxed at 30 per cent under the head ‘Income from other Sources’.
Prime Minister Nardendra Modi had recently acknowledged the country’s gaming potential, saying in his Independence Day speech, “I am seeing a big market that has come up in the field of gaming, but even today, the gaming world has a big foreign impact in terms of producing the games and earning revenues. India has a big heritage in the area and we can bring lots of new talent to the world of gaming.”
How has the gaming industry fared after the hike in GST?
Reports suggest that the industry has struggled since the increase in GST. According to a study by EY, the placement of online games in the highest tax bracket has affected the industry negatively. A USISPF survey found companies facing challenges in raising funding, making a good margin and have seen a stalled revenue since the GST rates were hiked. This change resulted in a higher tax burden for companies operating the online gaming sector, most of which had to function with the increase in tax to sustain their operations.Of the companies surveyed in the study, just 42 percent reported revenue growth following the GST amendment. The growth ranged from 1-25 per cent, while 58 per cent companies faced revenue decline or stagnation. This includes two companies with a massive 50 percent decrease in revenue. This represents a notable shift from the industry’s prior trend of exponential growth and highlights the significant financial impact of GST on the online gaming sector.
The hike in GST, absorbed by the companies, led to reduced margins and triggered workforce reductions, including layoffs, hiring freezes, and in some cases, operations were completely shut.
What do gaming companies want?
Most companies have recommended an amendment of the GST valuation mechanism to a ‘net deposit’ model (i.e., GGR/ platform fee), and some companies have recommended reducing the total withdrawals from the total deposits for GST purposes.
The online gaming industry has been filing returns since 2017, but they paid 18 percent from August 18, 2017 and October 2023.
The issue got complex with the GST department’s decision that all games involving bets played between August 2017 and October 1 2023 would have to pay a tax of 28 per cent instead of the earlier 18 per cent.
As many as 71 online gaming companies have received tax notices to pay a total of Rs 1.12 lakh crore, with some demands surpassing their annual turnover, according to the GST department’s calculations.
India currently has 442 million gamers, the second largest in the world behind China. The industry is valued at $3.1 billion and is expected to grow to $8.92 billion in the next five years.