Gamers not be taxed as gamblers; E-sport body proposes 28% GST on online games

Ahead of the 50th GST Council meeting, the E gamers Players Welfare Association (EPWA) has shared a report on the booming virtual gaming industry as the Ministers Group will likely include Tuesday online games within the scope of 28% of GST. The GST Council has proposed to tax GST at 28% on the total money deposited by players with a gaming company compared to the GST rate of 18%, which applies only to the platform fee.

Against this background, EPWA director and Tech Policy lawyer Shivani Jha told Mint: "We hope that the council of ministers will take equitable steps to ensure an increased GST doesn’t discourage players from playing altogether. Gamers must not be taxed the same way as Gamblers".

According to a report by the eSports body, the Indian online gaming industry is growing annually at a rate of 30% and is one of the fastest-growing segments within the media and entertainment sector. As of May 2022, the country accounted for 19.2% of game downloads worldwide. The gaming industry's compound annual growth rate is approximately 22%. In 2021, India registered around 390 million online gamers.

Effects of 28% GST on online gaming companies: According to the EPWA survey, if lawmakers increase the GST on online gaming, 61 out of 100 online gamers might stop playing online.

"Online gaming is a profession for some of us, an increased GST is a deterrent. Our investments in buying equipment also don't give us any input credit, and now the proposed regime seems harsh." Zerah, a professional gamer and CEO of Lxg, told the Mint.

The proposed tax rate changes will increase the financial burden on the gaming industry, as they will also be subject to paying taxes on those parts of the money, which in no way contributes to generating revenue for these companies, the report added. EPWA recommended that policymakers refrain from charging GST on all money and continue. They are charging GST only on Gross Gaming Revenue (GGR). Legislation must recognize that money won from online gaming is not a mere matter of chance but the player's skill.

Citing the Karnataka High Court in Gameskraft Technologies Private Limited v. Directorate General of Goods Services Tax Intelligence on May 17, 2023, the EPWA said: "There should be a clear distinction between online gaming on the one hand and lottery, betting, gambling and casino on the other The legislature should refrain from putting them under one umbrella. The Karnataka High Court held that online rummy differs from betting, gambling, lottery and betting. Additionally, prize pool money is an actionable claim, and GST will be charged only on the 18% contest entry fees.

The gaming industry believes that higher taxes may reduce the attractiveness of online skill-based gaming and may even affect foreign direct investment inflows, existing employment and Future employment opportunities, investment in marketing and information technology services and ancillary industries.