The Indian government has imposed a 28% indirect tax on the total fees that gaming companies get from item sales and revenue. The Finance Ministry in India first proposed the 28% levy in May, 2022.
A decision made by the Goods and Service Tax (GST) Council resulted in an update in the GST Act. Online gaming and gambling are now actionable claims.This council comprises the State and the Federal Ministers of Finance in India.
Over the years, gaming companies have adjusted to an 18% tax levy. However, a huge section of gaming revenue will be affected. The 28% tax will affect the face value of all bets and payments.
The Consequences of the Indirect 28% Tax on Gaming Revenue
The Indian gaming market will begin to experience a landslide of companies and players leaving, sooner or later. The increased GST levy will affect gaming platforms, and Indian players and gamblers almost equally.
These gaming platforms may begin to run at significant losses due to players bowing out. Likewise, as losses accumulate, these companies may eventually turn to their heels, leading to the eventual death of the Indian gaming industry.
Licensed Indian Game Companies will Lose
It has been a calm 60-plus years before the 28% GST tax storm. If this GST law stands, game companies will record losses due to players' heeling. The tax on game players could rise to 50% if this new law remains.
The total tax collection will include 28% GST, company’s commission, and 30% tax on winnings, deducted at source. These new developments have blindsided the entire gaming and gambling industry.
Players that experience these taxes will begin to feel a loss of passion for the game and other gambling activities. In turn, they will start turning towards other markets situated outside India. At this rate, gaming companies will begin to run at a loss.
New Start-Ups Will Suffer
The decision of the GST council will impact start-ups, including new online casino sites and gaming companies. This effect will be on multiple levels, affecting how these start-ups settle and their target player base.
Based on investor sentiments, many of these game companies will start looking at taking their businesses elsewhere. By making one erroneous decision, the GST council may have locked the Indian gaming industry into a self-destructive cycle.
Gaming and gambling as we know it in India may become a thing of the past. The All India Gaming Federation stated that the decision made by the council is unconstitutional, irrational, and egregious.
The Indian Gaming Industry will Die
Enforcing a 28% indirect GST on the base value of sales, revenues, and bets across the industry may have put its death in motion. This movement will give rise to many illegal and illegitimate game operators in India.
We may be looking at a sharp drop in the number of gaming companies and possible jobs in the industry. There are over 900 of these start-ups, thus creating about 50,000 jobs for Indians. A recent estimate showed that job creation could hit about a million in 2028.
However, with the latest developments, there is a chance that the opposite would be the case. We may be witnessing the death of the Indian gaming industry in front of our very eyes.
The Action Phases of the Imposition of the 28% Tax
- May 18, 2022 - The GST council proposed a 28% tax on gaming revenue.
- June 29, 2022 - There was a stay of this action due to the outrage from the affected parties.
- September 26, 2022 - Tax officials roped Bengaluru-based Gamekraft Technology for evading $2.4 Billion in taxes between 2017 and 2022. The officials calculated a 28% gambling levy, while the game company insisted on an applied 18% skill-based gaming tax.
- May 11, 2023 - The Karnataka High Court ruling favoured Gamekraft Technology.
- July 6, 2023 - The Western Coast State of Goa gives a go-ahead for the continued observance of the 28% GST regardless.