“This (recommendation) is a major shift from the current tax regime of charging GST on the platform fee/ gross gaming revenue (GGR) at the rate of 18%,” the companies wrote in a letter, which the Ficci Gaming Committee submitted to the board on Friday. “If the changes recommended by the GoM (group of ministers) are given effect, then the online gaming industry will be adversely impacted,” it added.
ET has seen a copy of the letter.
Members of the FICCI Gaming Committee include Dream11, MPL, Zupee, Games 24×7, HDworks, MyTeam11, Nazara Technologies, Krafton and Winzo, among others.
The GoM was constituted by the GST Council in May 2021 to examine issues related to the taxation of casinos, racecourses and online gaming. The group submitted its report in May 2022 to the 47th GST Council, recommending a 28% GST rate on online games. It also recommended that this be levied on the entire stake value, which is inclusive of gross gaming revenue (GGR) and the prize pool formed by the players.
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Queries sent to the companies remained unanswered as of press time Friday.
In their representation to Vivek Johri, chairman of the CBIC, the companies which are among the members of the FICCI Gaming Committee said they merely provide a platform to users and argued that only the income generated by such companies should be subjected to GST.
“Online gaming industry needs to be treated at par with information technology service providers,” the letter said. “As per the current practices followed by the online skill-based gaming companies, tax is paid at 18% on the platform fees (GGR) charged from players.”
The companies said a change in GST rate from 18% on GGR to 28% would be “extremely detrimental to the survival of the online gaming industry as no business operations can survive with such high taxation”. Also, the impact of charging GST on the entire stake value – whether at the rate of 28% or 18% – would be equally disastrous for the online gaming industry, they said.
GGR is the fee charged by an online skill gaming platform as service charges to facilitate the participation of players in a game on their platform. The entire amount deposited by a player to enter a contest on the platform is called the contest entry amount (CEA).
“The approval from the government recognised Self-Regulatory Body will clearly segregate permissible online real money games from gambling, betting, wagering,” Joy Bhattacharjya, Director General, Federation of Indian Fantasy Sports (FIFS) said in a statement to ET. “Multiple court judgments have already held that games of skill are distinct from games of chance. The impact of changes in TDS, on platforms and users needs to be considered. Therefore, online games approved under the IT Rules should only be taxed on Gross Gaming Revenue (GGR). The GoM report should consider these important developments before making a final recommendation to the GST Council.”
In the event of GST being levied at the rate of 28% on the value of the entire CEA, the companies said the online gaming industry will face major disruption in its robust ecosystem, “virtually driving the startups and new ventures towards extinction. “(It) will signal the end of the entire sector as such a move will drive away companies and investors from the online gaming space which will ultimately have a negative impact on the tax revenue of the government and economy.”
The companies also came out strongly against being classified with betting and gambling apps as they said the online gaming industry involved games of skill rather than games of chance which entirely depend on luck and unpredictability rather than skill. Thus, they said it would be “inappropriate” to treat online games of skill at par with lotteries, betting and gambling for the purpose of GST.
According to the letter, the Indian online gaming ecosystem largely comprises startups and new ventures. As of May 2023, it said, there were as many as 1,183 startup companies in the Indian online gaming space.
