Gaming Companies Appeal To Govt Against GST Increase To 28%

A consortium of leading online gaming companies has lodged a representation with the Central Board of Indirect Taxes & Customs (CBIC) through the FICCI Gaming Committee, urging against an increase in the GST rate for the sector from 18 per cent to 28 per cent, as proposed by a panel of ministers. 

In a letter submitted by the FICCI Gaming Committee to the board on Friday, the companies stated that this recommendation represents a significant departure from the current tax regime, which charges GST on platform fees and gross gaming revenue (GGR) at a rate of 18 per cent. The companies cautioned that implementing the suggested changes would have an adverse impact on the online gaming industry. 

Members of the FICCI Gaming Committee include Dream11, MPL, Zupee, Games 24x7, HDworks, MyTeam11, Nazara Technologies, Krafton, and Winzo, among others. 

The panel of ministers (GoM) was appointed by the GST Council in May 2021 to examine taxation issues related to casinos, racecourses, and online gaming. In May 2022, the group submitted its report to the 47th GST Council, recommending a 28 per cent GST rate for online games. It also proposed that this rate be applied to the entire stake value, which includes GGR and the prize pool formed by players.  

In their representation to Vivek Johri, chairman at CBIC, the companies argued that they merely provide a platform to users and asserted that only the income generated by such companies should be subject to GST. According to the letter, the online gaming sector should be treated equally with information technology service providers. Currently, online skill-based gaming companies pay a tax of 18 percent on the platform fees (GGR) collected from players. 

The companies cautioned that increasing the GST rate from 18 percent to 28 percent would have a severe negative impact on the viability of the online gaming industry, as such a high tax burden would be unsustainable. They also highlighted that charging GST on the entire stake value, whether at a rate of 28 per cent or 18 per cent, would be equally disastrous for the industry. 

GGR refers to the fee charged by an online skill gaming platform as service charges for facilitating player participation in games on their platform. The contest entry amount (CEA) is the total sum deposited by a player to enter a contest on the platform. 

Joy Bhattacharjya, the Director General of the Federation of Indian Fantasy Sports (FIFS), said in a media statement that obtaining approval from the government-recognised self-regulatory body would effectively differentiate permissible online real money games from gambling, betting, and wagering. Several court rulings have already established that games of skill are distinct from games of chance. It is important to consider the impact of changes in Tax Deducted at Source (TDS) on platforms and users. Therefore, online games that are approved under the IT Rules should only be subject to taxation based on GGR. The report by the group of ministers (GoM) should take these significant developments into account before making a final recommendation to the GST Council. 

The companies expressed concerns that levying a 28 per cent GST rate on the entire CEA value would severely disrupt the robust ecosystem of the online gaming industry, potentially leading to the extinction of startups and new ventures. They emphasised that the sector should not be classified alongside betting and gambling apps, as online gaming primarily involves skill-based games rather than games of chance that rely on luck. Therefore, they argued that it would be inappropriate to subject online skill games to the same GST treatment as lotteries, betting, and gambling. 

According to the letter, the Indian online gaming ecosystem is largely comprised of startups and new ventures, with approximately 1,183 startup companies operating in the Indian online gaming space as of May 2023.