How The Newly Recommended 28% Tax Rate Could Prove To Be A Disastrous Decision For The Indian Fantasy Sports Sector?
Published - 01 Jul 2022, 01:39 PM | Updated - 23 Aug 2024, 12:09 AM
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Online Gaming and Fantasy Sports games are set to get costly as a group of state finance ministers (GoM) set up to scrutinize the quantum of GST and mode of taxation on casinos, racecourses, and online gaming has unanimously proposed a flat 28 per cent goods and services tax (GST) on these activities.
The Group of Ministers (GoM), formed under the orders of the GST Council, had recommended that in the case of online gaming, the activities should be taxed at 28% on the full value of the consideration, including the contest entry fee paid by the player for participation in such games. It also proposed that no distinction should be made such as games of skill or chance for imposing the 28% GST.
However, the GoM, on Wednesday has deferred the decision and is likely to submit the report on the issue after another 15 days. Karnataka Chief Minister BS Bommai said that the decision has been deferred because there are issues that need to be discussed.
The reaction of the Indian Gaming Industry
The online gaming industry has already approached the GoM to reconsider its startling decision. The industry raised several concerns regarding the new hike in GST rate to 28% from the existing 18%.
Gaming Industry experts also pushed great concerns about not making a distinction between skill-based gaming and real-money gaming. The Fantasy Sports industry has always emphasized the demarcation between skill-based games and chance-based games. Looking at skill-based games through the same lens as betting, gambling, and horse-racing games would obstruct the growth of the industry hugely.
The reaction by the people from Fantasy Sports Industry
“Increasing the GST on online gaming from 18% to 28% will have far bigger implications than just an increase in tax rate by 10%. The overall increase in tax liability would be much much higher. And more tax liability can actually have a reverse impact on the overall tax collection for the government. You know what I mean” said Peeyush Sharma, one of India’s most-followed Fantasy Sports Experts.
“There needs to be a difference between the tax rates on the Games of Skill and the Games of Chance. This move might hurt the growth of this flourishing sector. Hence the government should reconsider its decision and bring a detached and independent tax slab for Fantasy Sports” said Arjun Kumar, a Fantasy Cricket Expert.
“The sector is highly competitive, and the increase in the tax rate would make the matters worse. It would severely impact both – the platforms as well as the users” said Kunal Porwal, a multi-sport Fantasy Expert.
“I think it can prove to be a great move as the government can use the money for the development of the sports ecosystem in India,” said Kartik Vyas, a Fantasy Sports enthusiast.
Online Gaming Industry of India
Online Gaming is a Rs 30,000 crore+ industry in India at present and is growing rapidly. The Indian Online Gaming Sector currently houses over 900 start-ups. Fantasy Sports operators alone have paid ₹1,500 crores in taxes for FY21 (GST + TDS + Corporate Tax), which is estimated to amount to a whopping ₹15,000 crores between FY20–FY24.
According to the reports by FICCI and EY, the online gaming sector in the country reached INR 101 Bn in 2021 with a 28% growth. Also, Online gamers grew by 8% (from 360 million users in 2020 to 390 million users in 2021).
As per the reports, the number of online gamers in the country is expected to reach 500 million by 2025, making it the fourth-largest sector of the Indian media and entertainment category. It is estimated that it would have a 25-30 per cent annual growth and also generate over one and a half lakh new jobs annually.
Drawbacks of the 28% Tax Rate recommendation
Applying a 28% GST on online gaming as a whole is an attempt to associate skill gaming with gambling, which falls under the higher GST bracket. This would put Online Gaming in the highest tax slab of GST along with other goods like aerated drinks and luxury cars.
Supreme Court rulings in India consider that games of skill will be considered legal and will not amount to gambling. However, this decision by the GST Council would connect the two of them.
Major Risks involving the 28% GST
– The GST council is looking to not tax just the income that the platforms are accumulating but the entire value of transactions that are being deposited with them by the players. This, in turn, will cause the tax burden to increase multifold.
– Industry experts and executives said that it could stunt the growth of online gaming firms and force Fantasy Sports firms to reduce the prize pools they offer.
– It might force Online Indian Gaming companies to move overseas and take jobs and revenues outside.
– This would mean that companies in India would end up needing to charge even heftier percentages of commission to remain operational and which would leave gamers with significantly tinier earnings than what they earn from contests at present.
– The reduction in the prize pool would also drive many players/users to offshore betting platforms.
According to Roland Landers, chief executive officer (CEO) of the All India Gaming Federation, this move could hamper the booming industry’s upward trajectory and lead to the closure of businesses in the sector.
Hence, Online skill-based games must be treated differently from gambling or betting since the formats and revenue models of such platforms differ hugely from the games of chance. The Indian Online Gaming Industry needs a GST regime that can protect and promote this sunrise sector. The Online Gaming Industry and the Central Government have to find a way to strike a balance considering the massive potential of this growing sector.
