GST Council's meeting today: What's at stake for online gaming industry

The online gaming industry is anxiously awaiting the GST council meeting tomorrow. The GST Council is set to meet on August 2 to address concerns and provide clarity on tax treatment after the recent decision to impose a 28 percent tax on the face value of real-money games.

The revised tax proposal has caused an uproar in the online gaming industry. Malay Kumar Shukla, Secretary, E-Gaming Federation had said 28 percent tax on full face value will lead to a nearly 1000 percent increase in taxation and prove catastrophic for the industry.

Stakeholders also fear that the tax burden will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players.

Entrepreneurs in the gaming industry also penned an open letter to the government, expressing their concerns over the announcement. The letter, signed by approximately 130 entrepreneurs, highlighted the industry's distress following the GST Council's recommendation to classify online skill gaming with betting and gambling.

One of the key issues raised in the letter is the proposal to levy GST on the full deposit value, a move that is anticipated to derail the industry's growth trajectory. In the letter, the entrepreneurs also emphasized the potential devastating implications for micro, small, and medium enterprises (MSMEs) and startups, which may lack the financial reserves to withstand such a substantial tax increase.

While it is unlikely that any changes will be made to the new tax slab proposal, stakeholders are hopeful that there might be changes introduced to the valuation methodology.

“If the tax is the platform fee, it protects the interests of the entire online gaming ecosystem, consisting of around 850 Indian registered companies,” said a representative from a central gaming associations body. As per the association, this methodology would allow the government to achieve its objective of increased revenue while also ensuring the sustainability of the majority of gaming businesses.

Stakeholders have submitted their representations to the government, requesting consideration of the platform fee-based valuation or the net deposit method, which would ensure fair taxation and prevent multiple taxations on the same amount.

Overall, the industry is hopeful that the government will consider their concerns and arrive at a fair and sustainable decision for the valuation of GST on online gaming platforms.

As per Statista, the online gaming industry across India was valued at around Rs135 billion s in the year 2022, marking a leap from about Rs101 billion in the previous year. The sector was expected to be worth over RS 231 billion by 2025, indicating a compound annual growth of around 19 percent. It remains to be seen whether these numbers can be achieved after the new GST slab is implemented.