Posting date: July 12, 2023 at 05:18h.
Last updated: July 12, 2023 at 05:18h.
India plans to impose a 28% tax on the funds online gaming firms, or iGaming firms, earn from their clients for each game. India is planning to impose a tax of 28% on the money that online gaming companies, or iGaming, make from their customers for each game. The Goods and Services Tax Council (made up of federal and states finance ministers) has approved the indirect tax for online gaming, horse racing, and casinos. The council said it won’t allow any distinction between a “game of skill” and a “game of chance,” therefore closing a loophole that has allowed fantasy sports companies to justify their offerings as skill-based.
The decision drew a swift and sharp response from the iGaming industry.
The gaming industry will face significant challenges with the implementation of a tax rate of 28%. Aaditya Sha, the COO of IndiaPlays, says that a higher tax burden would impact cash flow.
The government says companies have so far paid very little tax on the fees they charge for providing real money games.
Finance Minister Nirmala Sitharaman said, “The decision to impose tax on the total amounts gaming companies collect was taken after consultation with states, and the intent was not to hurt the industry.”
What’s at Stake
Online gaming is one of the fastest-growing consumer internet businesses in India with a current valuation of roughly $1.5 billion and a mammoth growth trajectory.
India has about 659 million smartphone users. Experts fear that the tax increase will result in a reversal of the growth rate. Experts fear the tax rise will result in a growth rate reversal.
“A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry’s image and capacity to survive,” said Malay Kumar Shukla, Secretary of E-Gaming Federation in a statement.
According to Tracxn, there are well over 1,000 gaming startups in India attracting domestic and foreign investors.
The Government’s Motivation
In addition to revenue from the large investments in the online gaming industry, the government laid out other motivations for its 28% tax decision.
One of the other main reasons according to Minister Sitharaman is that although the gaming apps are supported by sports champions in India, where cricket is the most popular sport, concerns have been raised about financial losses and potential addiction.
Our intention is not the end of online gambling, horse racing, or casino. “But all of these have become complex enough that going this way or that way, each route is transparent to a certain degree, but beyond that, there’s no transparency,” Sitharaman stated.
The government’s explanations of the situation have not been able to quell the criticism and comments from the online gaming industry.