The gaming industry, which is widely regarded as the progressive part, has undergone numerous innovations as a result of developing technology, including artificial intelligence, virtual reality, and the metaverse. The younger generations have started to view the industry not only as a source of leisure but also as a potential career path or profession.
The gaming industry is growing at a compound annual growth rate of about 22%, according to reports. By 2027, it is predicted to grow to $8.6 billion, illustrating the industry’s enormous growth potential.
But with the government’s decision to tax online gaming at a rate of 28% — experts warn of an existential threat to the booming industry which could lead to its demise.
KILLER BLOW
Experts describe the 28 percent GST on the full value of online gaming as a “killer blow” and argue that the GST council’s decision was a backwards step that will harm the booming industry and result in job losses.
Dr Rennie Joy, Corporate Lawyer and founder of Aalekh foundation says, while this move may be seen as a positive step by some, it could potentially have a significant impact on the industry, leading to job losses and several other undesirable consequences. “Firstly, the imposition of a 28% GST on online gaming platforms could result in adverse effects on the industry. Many gaming companies in India, both small and large, may struggle to absorb this additional financial burden,” she says.
The increased tax rate may lead to a decrease in investment, hampering the growth and development of the online gaming sector, warns Dr Rennie.
“It may also discourage new entrants and startups from entering the market, reducing innovation and competition,” Dr. Rennie says adding, “Furthermore, the higher tax rate could drive players towards unethical offshore gaming platforms that operate outside the purview of Indian regulations and taxation. This could result in a loss of revenue for the Indian government, as well as pose challenges in combating illegal gambling and other related issues. The absence of proper regulation and oversight on offshore platforms can lead to fraudulent practices, money laundering, and an increase in problem gambling, thereby creating social and economic problems for the country.”
At a time when India is striving to establish itself as a leader in emerging markets and aims to surpass China as a prominent player in the service and goods industry, this decision to impose a 28% GST on online gaming platforms could potentially hinder these aspirations. The online gaming industry has been witnessing exponential growth in recent years, creating employment opportunities, attracting foreign investments, and contributing to the country’s overall economic development. Imposing such a high tax rate on a growing sector might impede its progress and hamper India's economic and socio-economic prospects, Dr. Rennie says.
Shares plummet
Following the GST Council’s decision, shares of online gaming companies and casinos in India have plummeted. Over 900 gaming startups across the nation had been contributing a small amount of tax to the price they charged for game offerings. However, the entire sum received from players will now be subject to taxation due to the imposition of a 28% GST on the full face value of a gaming transaction.
Weighing in on the matter
Shaadi.com founder and Shark Tank India judge Anupam Mittal slammed the move, saying that entrepreneurs should now build rockets rather than gaming companies. He also took a dig at the rising prices of tomatoes in the country and asked users to invest in the vegetable instead of cryptocurrency.y
“Latest lessons — stop gaming, start building rockets, move money from crypto to tomatoes,” Mittal wrote in a tweet.
Lacks consistency
Players and gaming industry representatives claim that the decision lacked consistency. “When playing a real money game, a player can choose to do so for entertainment purposes or for financial gain. Taxation won’t have any impact on the desire to play because dopamine levels are unchanged from a basic drive perspective. But from the perspective of win rates, both the player and operator edges have shrunk, making winning more challenging as the win rate required to play the game profitably has increased post-tax,” says Anuj Kodam, CEO of WALL.app, this would make it harder for players to indulge in their pastimes without going broke. India accounted for 19.2% of game downloads as of May 2022.
Differentiating between gamers and gamblers
“The 28% GST on online gaming and casinos can increase costs for gamers and potentially discourage participation. Differentiating taxation between gamers and gamblers is important because gaming is primarily entertainment, not gambling. It’s crucial to consider the impact on gamers, the gaming industry, and strive for fair taxation that supports growth and innovation,” says Devanshu Mahajan, gamer.
Another gamer, Adit Minocha feels that the 28% GST levied on gaming should be limited to gambling or betting only, and not affect online gaming or eSports. “Being a gamer myself, I understand people who are not in the industry have questions about how legitimate this entire field is. People often get confused between online gaming, esports and gambling; combining all as one,” he says.
“The basis of skill should kept separate from gambling or a game of chances. A lot of young people aspire to be in the esports industry that is so huge globally, I feel it shouldn’t pose as a barrier for India to take over the gaming industry,” adds Adit.
CHECK AND BALANCE
The Indian government seems to categorise Online Gambling into Online Gaming! “With regards to the criticisms from the Online Gambling industry, with the rise of several random firms which has gone unchecked, this may deter the foolhardy from gambling with their fortunes,” says Anil, a gamer.
The Government obviously is looking for a larger piece of the pie without any form of rules or governances being put in place.
“The serious gambling community will still continue to test their skills regardless of the outcome of the GST imposed. It would have been much better if there were more stringent checks and balances in place before a lot of the so called online gambling firms (Zupee, Playwin) could mess with and encourage mostly under privileged folks to gamble with their meager earnings,” he says adding “this will lead to a drop off in some platforms but also a larger number of riskier bets being placed.”
