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- The Indian government is said to be ready to increase
GST on online gaming at 28%, a proposition that could spell trouble for the industry and gamers. - The online gambling industry is expected to cross a $5 billion valuation by 2025, but taxman greed could kill the golden hen.
- Experts are concerned about the impact this could have on the industry – both gamers and companies, which are still in their early stages.
The Indian government is said to be willing to tax casinos, online gambling and horse racing at the highest level of GST – 28%. It seems that the taxman intends to treat these recreational activities and skills on an equal footing with tobacco, cigarettes, cryptocurrencies and luxury cars.
Online betting, gambling, casinos and horse racing have long been treated ‘unfairly’ by India’s tax authorities – while GST has been drastically moderated to 18% so far. Gains and other income from these activities were taxed at the highest rate of 30% without any deduction.
Now, a new report suggests the government is considering raising the GST rate to 28% – the highest rate currently in effect. This will also apply to mandatory food and beverages, which will increase costs for companies and participants.
Fantasies are taxed too, and that too doubly
The government’s proposal says GST will be charged on gross revenue, not net value added, which goes against both global tax ethics – as well as the very foundation of the GST system. , which aims to remove the undesirable effect of double taxation.
“Taxing online gaming, horse racing and casinos on gross income instead of net value added would be a departure from global tax ethics,” Rajat Mohan, senior partner, AMRG & Associates, told PTI. .
This could have a negative impact on the entire industry. For example, the online gaming industry, which includes MPL, Zupee, Winzo and other startups, is expected to surpass $5 billion in valuation by 2025, according to a report by IBEF.
The government earned nearly ₹1,500 crore from fantasy sports in the form of taxes in FY21. A Deloitte report says the combined industry contribution could reach a whopping ₹16,000 crore cumulatively over the course of of the next two years.
And the tax authorities believe they have found a goose that lays the golden egg.
The expensive game of confusion
The online gambling industry has been plagued by the ambiguous nature of government tax policies. It has often been said that the tax authorities are confused about the nature of online gambling – whether it involves skill or just gambling.
It might be justified to tax gambling at the highest tax rate, but experts believe it is unfair to punish games of skill in the same way.
To make matters worse, the government wants to raise the tax from 18% to 28%.
Mukesh Ambani, Rakesh Jhunjhunwala and many more will be affected
It may also negatively impact telecom operators, who are banking on online gaming as a new source of revenue as the industry appears to be entering a stagnant phase.
“Rather than just being the pipe, telecom operators like Jio (owned by RIL) and Bharti are focusing on gaming as an additional source of advertising/subscription revenue. India will be bigger than music, movies and TV shows combined,” said a report from Bank of America Securities.
It could also have an impact
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“It would be a great distress to the business model, as the announced super tax would either have to be funded by the platform, which is not making that kind of money in this industry, or would continue to reduce the size of the pool – effectively reducing interest in client engagement,” Adarsh Somani, senior partner at ELP Law, told Business Insider India.
This would wreak havoc on the gambling industry, and even if the government wants to reduce the hardship by offering a single – but higher – tax rate, the assessment methodology will need to be clarified, Somani added.
As things stand, there is a lot of ambiguity that will need to be resolved by the government – even a small misstep could cause a lot of trouble for the gaming industry and its participants.
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