Lumikai (an Indian gaming venture fund), in its recently released report, has lowered revenue forecast for the domestic online gaming industry. The report projects the industry to achieve USD 7.5 billion revenue mark by FY 28, which is a sharp drop from its earlier projected mark of USD 8.6 billion for FY 27. The drop is attributable to the recently imposed 28% GST on online gaming at full face value of stakes placed (and not on platform fees). The decision was taken in the 50th GST Council Meeting (held in July, 2023) and the Amendment Bill was subsequently passed by the Parliament in August. The 28% GST law got enforced from 1 October, 2023 and will be reviewed after 6 months of applicability.

Earlier, 28% GST on face value of stakes was imposed on only games of chance like gambling and betting. On games of skill which are not merely based on chance but on knowledge and expertise of players such as puzzles, card games and dream 11, there existed a GST rate of 18% on platform fees. However, now the government has removed the distinction between game of chance and game of skills and made a uniform tax law for them. This article will take a look at both the government's stand as well as the gaming industry's standard and give a final opinion on the issue.

Stand Taken By The Government

The final GoM removed the distinction of classifying online games into skill or chance, as it complicated tax calculations. Instead, they decided to make it uniform. The government opines that the distinction between games of skill and chance makes a loophole and the gaming companies take advantage by justifying their games as requiring skills to avoid paying taxes. The decision to impose GST on the turnover is anticipated to significantly increase revenue collection, potentially by a factor of ten. In an interview with the Economic Times, Revenue Secretary Sanjay Malhotra expressed this expectation. Emphasis has also been laid on discouraging youth from playing online games as the same is considered morally wrong and unethical by society.

Highlights Of The Gom Report

1. The GoM report heavily relies on the judgment of the Hon'ble Supreme Court in the case of Skill Lotto Solutions Pvt. Ltd. Vs. Union of India (UOI) and Others [2020 (43) G.S.T.L. 289 (S.C.)]. It suggests that when determining the taxability of activities such as casinos, online gaming, and horse racing, the principles established in the Skill Lotto case should be taken into account.
2. Drawing from the Skill Lotto case, the report concludes that online gaming also constitutes the supply of an actionable claim and, as a result, should be subject to a 28% tax on the full-face value.
3. The report warns that applying different tax treatments to these activities may lead to legal disputes, particularly in the context of lotteries.

Perspective Of The Gaming Industry

As per the gaming industry, the imposition of a 28% GST on online gaming is poised to make a substantial impact on the online gaming industry and its various stakeholders in India. First, it will lead to an increase in cost for the end users. As previously mentioned, end users will be required to pay a 28% GST on the full entry amount, irrespective of whether they win or lose. This will result in their effective tax burden surging to over three times in the current scenario.

Moreover, the decision to tax online gaming at 28% has met with resistance from many players, as it coincides with India's burgeoning online gaming market. Aaditya Shah, the CEO of IndiaPlays, voiced concerns that this taxation could substantially hinder the growth of gaming companies. Industry experts argue that skill-based gaming should not be categorically grouped with betting, indicating a need for a more nuanced approach to regulate and tax these activities.

Critics of the decision to tax online gaming also argue that it could have a detrimental impact on the entire industry, potentially leading to job losses. They expressed concerns that this move may inadvertently benefit illegal offshore platforms, which operate outside the regulatory framework and potentially engage in anti-national activities. The critics further assert that this drastic increase in GST will cause irreparable harm to the $2.5 billion investments made in the Indian online gaming start-up ecosystem. The Internet and Mobile Association of India (IAMAI) has stated that the net impact of this tax will lead to an approximate 1,000% increase in the Goods and Services Tax (GST) burden on the online gaming industry.

Conclusion
In the author's opinion, imposition of 28% GST (on full face value of stakes) can be detrimental for the gaming industry. This can potentially hinder the growth and expansion of the sector as the new tax regime offers gamers with smaller returns on their stakes. The profits of companies may also reduce, which in turn, can take away job opportunities, that the sector has the potential to create. Companies that were hopeful about their future in the Indian gaming industry have raised questions against the new tax rate. Even though the government is of the view that tax collection will rise in response to the new tax structure, one clear cut negative consequence would be a rise in black market operators that do not charge any GST.