OPINION | Online Gaming Tax Retrospective: Humongous Increase In GST Is Yet To Meet Objectives

OPINION: India's online gaming industry is at a critical juncture. What happens now will determine whether the potential is realised, or the opportunity is squandered. 

The hope is that through thoughtful regulation, balanced taxation, and industry collaboration, gaming can be transformed into a cornerstone of India's digital economy.

Source : SAIYED IRFAN A/Pixabay

By Amrit Kiran Singh

This past month, amidst a gathering of brilliant minds at the launch of the book Online Gaming in India: Technology, Policy, and Challenges, there was an immense sense of pride and responsibility. The book marks a pivotal moment for India's online gaming industry — an industry with staggering potential yet beset by challenges that demand urgent attention. In this year-end retrospective, some key insights about the GST policy can be summarised.

Promise Of India's Gaming Sector

The global gaming industry is valued at $300 billion, making it four times larger than the combined revenue of the movie and music industries. Despite India's standing as the second-largest gaming market, with over 500 million gamers, the industry captures only a fraction of its value. Of the $18 billion Indians spend on gaming annually, only 17 per cent stays within the country.

This glaring disparity underscores the need for reform. Online gaming has the potential to become one of the driving forces behind achieving the nation's ambitious $1 trillion digital economy target by 2026. Like the IT revolution of the 1990s which transformed India's global reputation, the gaming sector has the potential to do the same, provided it is nurtured with the right policies.

Skill Vs Chance: A Crucial Debate

One of the most persistent challenges in our industry has been the distinction between games of skill and games of chance. This dichotomy affects everything from legal decisions to tax policies.  The complexity of gaming is often misunderstood, with many hastily labelling all games as gambling.

However, there's now a ray of hope. Under the leadership of Padma Shri Professor Bimal Roy, former chairman of the National Statistical Commission, a groundbreaking statistical framework has been developed. This framework provides a robust, data-driven method to differentiate between skill-based and chance-based games. 

With this tool, policymakers can make better-informed decisions, ensuring fair regulation that supports growth and innovation in the sector.

Taxation Conundrum

While regulation is essential, punitive taxation threatens to derail the gaming industry. In October 2023, the GST Council increased the tax rate from 18 to 28 per cent, levied not on platform earnings but on the deposit. 

To illustrate, if four players each contribute Rs 100 to play a game, the platform collects Rs 10 as its fee, while the remaining Rs 360 forms the prize pool. The new tax regime demands Rs 28 on the entire Rs 100, not just on the Rs 10 earned by the platform. This represents about a 1400 per cent increase in tax burden and is untenable.

Even from a moral standpoint, where high taxation might have been intended to discourage gaming activities, the policy has failed to achieve its objectives. 

Instead, it has created a double whammy: Indian players remain unprotected as they continue to play unabated on offshore illegal platforms, and domestic platforms face an unfair competitive disadvantage due to the high GST burden. 

This has resulted in players migrating to offshore platforms that openly advertise their GST-free and TDS-free experiences.

Research has conclusively shown that the high GST policy has led to the migration of Indian gamers to offshore platforms, which neither pay GST nor deduct TDS. This is a loss for the Indian economy and a setback for the industry. 

The appeal to the government is clear: adopt global best practices. Either impose the GST on Gross Gaming Revenue (GGR) or a lower rate on the deposit. This balanced approach would not only sustain domestic growth but also help the government achieve its revenue goals.

Smart Regulation: A Balanced Solution

Concerns about addiction and the potential risks gaming may pose, especially for younger audiences, are valid. However, these issues shouldn't justify draconian measures. 

Instead, the industry advocates for smart regulation. 

With the use of technology, gaming hours can be monitored and limited, signs of excessive use can be identified, and safeguards can be implemented to promote responsible gaming. Unlike other industries with addiction concerns, such as the alcoholic beverages industry, the gaming sector can use technology to encourage responsible use.

Furthermore, research has shown that an increase in GST is not the appropriate way to address these concerns. 

The higher GST has only driven Indian players to offshore platforms where addiction concerns are manifold due to the lack of any safeguards for player safety.  The GST increase, in this context, has been the proverbial cutting of one's nose to spite one's face for the country.

The industry also urges the government to implement the regulations drafted by the Ministry of Electronics and Information Technology (MeitY). These rules, supported by the new skill-chance framework, can bring much-needed clarity to the sector, ensuring that permissible games are distinctly classified, and illegal offshore platforms are effectively curbed.

A Vision For 2025

India's online gaming industry is at a critical juncture. What happens now will determine whether the potential is realised, or the opportunity is squandered. 

The hope is that through thoughtful regulation, balanced taxation, and industry collaboration, gaming can be transformed into a cornerstone of India's digital economy, much like the IT sector did nearly four decades ago. 

It has been just over a year since the new increased GST regime was implemented, and enough information has been gathered to show that despite the best efforts of the relevant ministries, the GST policy has not delivered for the people of the country: MeitY domain and app bans are regularly circumvented through techniques such as domain farming, MIB advisories regarding the advertising bans on illegal offshore betting and gambling firms are regularly ignored with even celebrity endorsements continuing, and the Ministry of Finance and GST Department effort to register offshore gaming platforms to collect GST has so far seen a dismal response. 

However, there remains hope, especially as the GST Council has promised a timely review. The industry is eager to share its evidence and insights with the council.

Looking ahead to the New Year, there is a sense of optimism. The challenges are immense, but so is the potential. The goal is to ensure that the industry not only thrives but also becomes a model for sustainable growth and innovation. 

It is hoped that in 2025, the Government and the skilled online gaming industry in India will work together to build a tax and regulatory framework for the industry that enables the industry to become like the IT industry, a global model for others to emulate and learn from. 

(The author is the Founder-President, Skill Online Games Institute (SOGI))

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