The proposed Goods and Services Tax (GST) of 28% from 18%, along with 30% income tax on winnings, takes the rate of taxation on the industry between 45% and 50%, said the report titled 'GST on Online Skill-Based Gaming'.

The GST Council's Group of Ministers are examining the levy on online gaming industry, which currently contributes more than Rs. 2,200 crore in taxes. One of the considerations by the panel is a levy of 28% GST on the complete contest entry amount including the prize pool, which can have an adverse effect on the industry.Levy of GST on the contest entry amount would increase the tax burden on the industry by 10 to 20 times. The industry currently pays GST at the rate of 18% on the platform fee or the Gross Gaming Revenue (GGR) earned directly by the gaming operators.The report has also listed out the features that set online skill-based gaming apart from games of chance. It entails technology solutions that are provided by operators to enable user-interface as well as build a gaming ecosystem and act as facilitators. The fee charged is a fixed consideration and is not dependent on outcome. Its success is also dependent on the superior knowledge of the user and engagement with the game, making skill the predominant element.According to recent industry estimates, there are 500 gaming companies in the country, which have provided employment to thousands of people and have also seen an inflow of Foreign Direct Investment (FDI) worth $2.7 billion. However, they are likely to be impacted by high taxations and would open doors for offshore operators.

"This sector could also help in facilitating the GoI's vision for the Animation, Visual Effects, Gaming and Comic (AVGC) sector and encourage the domestic players rather than driving users to foreign companies/ offshore platforms; thereby enhancing government's revenue collection," the report said

"The growth of the online gaming industry comes as no surprise as it's largely youth-driven and has been fuelled by the increasing usage of internet and smartphones, especially during the pandemic. India is expected to become one of the world's leading markets in the gaming industry, which also bodes well in terms of a robust digital economy GDP as well as an employment-generator. Therefore, any step that the government takes to strengthen the sector through an optimal tax structure is welcome," Deepak Sood, secretary general, Assocham said.The crystallisation of the GST valuation mechanism could be a catalyst in enabling ease of doing business and spur growth of this rising sector, added the report.