• Notification Date: 22-07-2023
• Notification No: N/A

Investors’ Letter to PMO expressing concern over 50% to 70% Effective GST on Online Gaming

10 days after the GST council announced the decision to impose 28% GST on full value of bets placed, over 30 investors have come together to express concern about the cascading effect of the proposed tax regime and written to the PMO to reconsider the decision. The decision impacts over $2.5 billion investments the sector has attracted so far and any future investments to the tune of $4 billion expected in next few years. 

In a letter to Prime Minister Narendra Modi investors have highlighted the issues with the decision of the GST Council, the biggest one being the cascading taxation (BrandWagon Online has access to the letter). The letter stated that if ‘full value of bets’ is understood in a manner where GST is levied on every contest played every time with fully taxed winnings, then the tax burden will increase by more than 1,100% and on account of taxation of redeployed player winnings, the same money will get taxed repeatedly resulting in a scenario where over 50-70% of every rupee will go towards GST, thereby making the online real money skill gaming business model unviable. This will be much higher than the effective tax rate for Casinos. 

In their appeal, investors further wrote that if the ‘full value of bets’ for the purpose of levy of GST on online gaming is the full deposit value that is, deposits made by users and not taxed again if the winnings are redeployed to play a game (at par with casinos), there will be a 350% increase in GST burden. This will result in the closure of most gaming startups and will require major restructuring across the industry to survive. The issue being raised both by industry and investors is not the increase in rate, but on the value on which the rate is being applied. 

all deposits for online games are digital and made via authorised payment channels, it would allow GST authorities to track and verify all GST filings and remove any scope for manipulation by unscrupulous actors. 

It is estimated that the online skill gaming industry is expected to contribute approximately Rs 4,500 crore in GST at the rate of 18% of the operator’s gaming revenue by the end of FY24.  However, the current increase in the rate from 18% to 28% on the operator’s gaming revenue would have led to a 55% increase in GST collection for the exchequer from this sector without adversely impacting the sector. “This would have also ensured that the practice is in line with how GST/VAT is levied on gaming across most international markets,” investors highlighted in their letter.  

Tiger Global Management, Tribe Capital, The Raine Group as well as domestic investors including Kalaari Capital, Orios Venture Partners, Matrix Partners India have urged Prime Minister Modi to reconsider the 28% GST to be levied on the full value of bets on online gaming industry. The investors have highlighted that the tax regime is onerous and would lead to a $2.5 billion loss as well as put one million direct and indirect jobs at risk. 

Not to mention the industry also spends roughly $1 billion on advertisements, which would be significantly scaled down, leading to a cascading adverse impact on the larger media and entertainment industry.