NEW DELHI : The Goods and Services Tax (GST) Council on Tuesday decided to tax online gaming companies at 28% of their gross revenue, or full face-value of transactions and entry fees paid by gamers, disappointing an industry that has lobbied for months to be taxed on its profit rather than revenue.
NEW DELHI : The Goods and Services Tax (GST) Council on Tuesday decided to tax online gaming companies at 28% of their gross revenue, or full face-value of transactions and entry fees paid by gamers, disappointing an industry that has lobbied for months to be taxed on its profit rather than revenue.
Online gaming firms have so far paid 18% GST on their net profit.
Alongside the new tax regime, Union finance minister Nirmala Sitharaman said at a press conference after the GST Council's 50th meet that online gaming services "are not actionable claims".
The taxation decision could deal a blow to online gaming companies. Industry regulators and stakeholders expressed shock, saying the tax risks making online gaming businesses unviable in India.
"Most online gaming ventures in the country, including the ones that have scaled up, do not have an operating margin of more than 7-10%. Imposing a tax liability of 28% on total revenue would leave them with a tax quantum of potentially 3x of what they earn, and exponentially higher than the tax that they currently pay. This is practically impossible for the industry to pay," said a senior policy advisor to online gaming companies on condition of anonymity.
The advisor added while the fine print is yet to be scrutinized, it is likely that the verdict will be challenged in court.
Jay Sayta, a technology and gaming lawyer, said the new regime may take a while to be enforced.
"Since it has been decided by the GST Council that amendments have to be made to Entry 6 of Schedule III of the CGST Act to exclude online skill-based gaming from the ambit of actionable claims and correspondingly all 28 states will have to amend their state GST laws to reflect this position, it will take at least 5-6 months to bring into force this changed rate and manner of valuation of taxation for online skill gaming industry," Sayta said.
"The differential treatment for games of chance like casinos, and games of skill played in online gaming, is arbitrary—and will face legal challenges. This decision will have an adverse impact on the nascent sector and future investments," said L. Badri Narayan, executive partner at law firm Lakshmikumaran & Sridharan.
Gaming firms, too, expressed surprise. Bhavin Pandya, co-chief executive of online gaming firm Games24x7, said the verdict "creates a hostile environment for legitimate domestic platforms with an unrealistic tax burden, and is counterintuitive to the measures that the government has taken to promote this sunrise sector."
Imposing GST on full face value will render legitimate online gaming industry unviable, effectively driving consumers to offshore and illegal platforms that pay no taxes, resulting in loss of taxes and outflow of foreign exchange, he added.
Roland Landers, chief executive of online gaming body All India Gaming Federation, said the decision "is unconstitutional, irrational and egregious. The decision ignores over 60 years of settled legal jurisprudence and lumps online skill gaming with gambling activities."