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  • Writer's pictureAnushka Trivedi

Online Gaming is a "Sin" product in India with 28% whooping GST!

Updated: Jul 13, 2023

Tax authorities are giving back-to-back shocks to gaming platforms and gamers. Earlier, in May 2023, CBDC (Central Board of Direct Taxes) issued guidelines via a circular dated May 22, 2023, which mandated online gaming platforms to deduct 30% tax in the event of winning price without any threshold limit (previously the limit was Rs 10,000).

It means if players earn more than Rs 10,000 then only companies had to deduct TDS. But after May 22, 2023, companies need to deduct @30% of players' winnings irrespective of the winning amount.

Players of fantasy gaming platforms like Rummy, Dream11, or any other platform, whether skill-based or non-skill-based, got adversely impacted.

Now the decision of elevating the GST rate from 18% to 28% is whooping. Because it's not just the rate but also the rate "on" which the percentage is going to be levied is going to matter.

There is a reason why people are calling it 1000% taxes, not simply a rate hike. Let's understand the reason thoroughly-

The primary source of income for gaming platforms is a commission that they charge from players at the time of entering content. So if a player enters with Rs 10,000, the company will deduct their commission, say 20%.

Till now, gaming platforms like Dream11, Rummy, or CricketPe have to pay tax on Gross Gaming Revenue (GGR), which is Rs 2,000. The tax amount will be Rs 360 (Rs 2,000*18/100).

But, as per the proposed regulation by the GST council, not only do companies have to pay a hiked tax rate of 28% but also on Contest Entry Amount (CEA).

Continuing with the same example where a player has entered the game with Rs 10,000. Companies now have to pay Rs 2,800 (Rs 10,000*28%).

Now you can see a whooping gap between current and proposed law is Rs 2,440 (Rs 2,800 - 360)

Unlisted companies are in the red zone

Companies like Dream11, Gameskraft, Mobile Premier League, and CricketPe are going to have a negative impact. If the proposed regulation gets a green flag by law and is imposed on the companies, the profit margins will become significantly low.

The industry will become unattractive to foreign investors who already have invested $2.5 Billion in the Indian skill-based market.

Investors already started showing their negative sentiments!

Listed companies like Delta Corps and Nazara Technologies too get impacted adversely. However, Rakesh Jhunjhunwala-backed Nazara technologies are not supposed to have a significant negative impact as its skill-based gaming segment only consists of 5.2% of its consolidated revenue.

Delta Corps, a Goa-based Casino operator and a dominant company in organized casinos face a nearly 30% tumble in share prices right after the GST hike announcement.

Why is the government considering it a sinful product?

Ever seen a TV advertisement for these applications?

They always mention a disclaimer for the player to play the games carefully as it is addictive in nature and involves financial loss.

Even the key executives and founders of these games know the harmful sides so does the government. Just like other sinful products such as tobacco, alcohol, and cigarettes are not banned as it takes a considerable portion of the government's income from tax, online fantasy gaming platforms serve the same purpose.

But in the case of online gaming platforms, foreign investors are also involved.

And the irony is Dream11 was just celebrating a deal worth Rs 358 crore. Dream11 is appointed as a lead sponsor of the Indian Cricket Team, the rights for which were previously held by EdTech Byju. The celebrations seem like they have turned into a nightmare due to a terrific tax rule change by the GST Council.

What do you think will the GST council actually implement the proposed law? If yes, then will gaming platforms be able to survive? Especially the companies whose income sources totally depend on skill-based gaming commissions!

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