28% GST: Online gaming companies await more clarity before taking next steps

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Online gaming firms are now waiting for clarity on how the 28% tax rate at full face value, announced by the GST Council on Tuesday, will be implemented. The companies are looking for details of how the tax will be levied before deciding their next course of action.

An executive at an online gaming firm suggested that the government should issue a list of FAQs as soon as the GST law is amended. Another executive at a fantasy sports platform put forward a question whether tax would still be levied on a user transaction if they utilise winnings from their previous contests to enter into a new one.

“If the tax is only being applied on the first instance on the money that the user enters the game with then the impact may not be a death blow,” they said as per The Economic Times.

The online gaming companies were hoping for GST to be levied on the gross gaming revenue (GGR). After the dreaded announcement, the companies were disappointed and criticized the decision.

The companies have claimed that levying tax on full face value is not in line with international practices. Many other countries such as the UK, Singapore, Australia charge tax on GGR while there are some as well which charge it on full face value like Germany and Portugal.

One of the possible reasons why the companies were expecting GST to be levied on GGR could be the latest amendments to the online gaming rules announced by MeitY earlier this year which specified that games involving wagering will not be permitted. This probably gave the impression that the Council will distinguish between games of skill and chance which it did not.

Furthermore, the industry is also wondering if the smaller firms will be able to overcome the tax burden or not. While established firms like Dream11 and Gameskraft might be able to take the GST blow with lower profit expectations, smaller firms might have to shut down, stakeholders believe.