Wednesday, June 12News That Matters

GST council meeting on Aug 02 – Industry, investors, gamers hope the council will consider their concern of repeat taxation

28th July, New Delhi: The GST council is likely to meet on August 02, to finally decide the implementation of GST on online gaming. The council will also decide whether the 28% GST will be levied on the deposits or on every game. The revenue secretary yesterday had acknowledged that levying 28% tax on every game will lead to repeated taxation of the same rupee resulting in the effective tax rate going as high as 50%-70%.

He clarified that while there was no possibility of taxing the GGR, which is internationally prevalent in countries like USA, UK, Australia, whether the GST will be levied on deposits, or every game is a decision that the GST council will take.

There has been a widespread concern on the debilitating effect that taxing every game will have on the industry. Earlier last week, over 30 global and Indian investors wrote to the PMO noting that taxing every game will have a cascading effect and will lead to an effective taxation of 50%-70%, which is unheard of and will definitely render the industry unviable.

Weighing in on the issue, Dr. Deepali Pant, former Executive Director of RBI said “Raising the GST rate from 18% to 28% in my opinion is entirely reasonable. After all, many industries including the entertainment sector, which is what I believe online gaming companies also offer, pay GST at 28%. The issue does not lie with the 28% uniform levy of GST, but the change in value from platform fee or commission to full-face value of every game seems unjust.”

“Levying GST on every game means taxing the online gaming industry worse than even the casinos where the GST is being levied on the deposits. The implication of levying tax on every game/ on winning effectively bumps up cost/ taxes which may likely increase effectively to 50-70%. This would not be a viable option for the industry or the gamers and this is an issue that needs to be addressed.” she added.

While deliberating on the issue, former Chairman of the Competition Commission of India, Mr. Dhanendra Kumar said “The government has grouped online gaming with casinos and horse racing for taxation; while this in itself may be understandable, the cascading effect resulting from taxation on full value may be the biggest damper. While the casinos are being taxed at 28% on face value with no tax on further redeployment of winnings, the effective rate of taxation for the Online Gaming industry is actually not 28% but works out to more than 50%.”

Levying 28% GST on every game will result in more than 1,000% increase in GST liability. As a result almost all 1,000 Indian gaming startups, with INR 25,000 Cr in revenues, will shut down leading to loss of employment for more than 50,000 high-skilled jobs in the industry. Additionally, 40 Cr Indian gamers between the ages of 18-58 across India will be burdened with this extra tax via reduced winnings. Also, if the GST is levied on CEA instead of deposits, it will result in cumulative GST collections reducing by over INR 40,000 Cr & overall tax collections by ~INR 45,000 Cr over 5 years. Foreign Investments worth $2.5 Billion and Enterprise Value of Indian gaming startups worth $20 Billion will also be written off.