India’s Gaming Sector Struggles with GST, Experts Say

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The nation has a traditionally strong legal gambling industry, with online gaming among booming segments in recent years. Indirect taxation, however, is a mounting problem for gamers and operators alike.

Online Gaming, the Tech Industry’s Rising Star

Having made a name for itself as an IT support and outsourcing heaven, India is gaining recognition as one of the top new-generation tech markets. The desi online gaming industry, for one, is in the top 5 globally, with game app downloads second only to China.

More importantly, original gaming content and locally based operations have been valued at around a billion US dollars. That number is projected to double by 2023 according to a joint report by EY India and the All India Gaming Federation (AIGF). Online gamers are expected to pass 500 million a year earlier, with real-money games played by roughly a third of those.

Recent legislative changes, however, have impacted the sales across the industry, from online lottery tickets to fantasy leagues, from casual games with in-app purchases to classic rummy and poker sites. The introduction of Union-wide GST rates is one part of the problem, with 28% deemed too high by industry experts. Government valuations on the taxation base are an issue apart.

The GST confusion was apparently settled in the eyes of authorities – both Central and State – with the idea of creating a uniform goods and services market for all of India. However, GST implications on particular business models such as gaming and online gambling entail more than meets the eye.

High Rates and Inflated Taxation Bases Threaten State Lotteries

India’s income tax on gaming earnings is rather straightforward and is all that players usually care about. Some have noticed, however, that services and prices for many gambling platforms have shot up after the 2017 introduction of GST across the nation.

After a Supreme Court judgement in December of 2020, lotteries, for one, have had to accept a universal GST of 28% on all sales, meaning ticket prices. Before that decision, intra-state lotteries put only 12% on ticket prices, while 28% was reserved for out-of-state sales. Since 2017, the overall tax incidence has risen from 6.71% (pre-GST) to a flat 28%.

The bone of contention between industry and Government is easily illustrated by the excessive valuation of what needs to be taxed. Operators are expected to charge GST on all sales and are not allowed to exclude winning payouts. This has left them with the option of either raising ticket prices or lowering prizes and jackpots, with the latter being the most attractive part of India’s favourite money game.

With prices too high for a regular consumer, retailers have signaled that there has been a sharp drop in sales in most states. The result has been black markets and less tax revenue for the exchequer in many cases. In the last nine months, authorities have collected Rs 3,725 crore in GST while the lottery industry’s total valuation is around Rs 60,000 crore by the AIGF. Even at 20% GST, that should bring in as much as Rs 12,000 crore, illegal lotteries permitting.

For online gaming platforms, GST imposition on the entire turnover has also made their core business model rather unsustainable. The majority of mobile and online casino operators like 10Cric charge a rake fee or a usage fee, others sell in-app extras. Failure to subtract payouts to users and consider only net revenues jeopardizes the very existence of many gaming businesses.

Hopefully, the recently assembled panel of Ministers will review and revise the GST regime and allow a rising industry to plan for further investments, job creation and tax contributions.

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