Government must adopt a progressive tax policy to see full potential of online gaming industry

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The online gaming industry in India is termed as sunrise sector with a  potential to be valued in tens of billion dollars. The industry has grown rapidly post Covid19.

The mobile gaming market in India is projected to hit a $5 billion opportunity by 2025 from $1.5 billion in 2021. Mobile gaming is expected to triple to a $5Bn+ market opportunity by 2025 – 300Mn+ user base, growing with ease of access; spike in new adoption; leading companies actively shaping market evolution with increased marketing spends. Real money games like poker and rummy form a major chunk in terms of revenue percentage of entire mobile gaming industry.

However, the taxation of real money games is termed as an area of concern with tax department taking a different view when compared with departments like MeiTY. Earlier this year, MeiTY had notified rules regulating online skill games like poker and rummy. While so, the tax department has taken a stand that poker and rummy amounts to betting and gambling and liable to be taxed at highest slab rate of 28%.

The GST council had constituted a Group of Ministers (GoM) headed by Meghalaya Chief Minister Conrad Sangma to study the issue and submit a report. In the 47th GST council meeting, the GoM submitted a report and resubmitted a fresh report in the 48th meeting after Goa raised certain concerns on the first report.

The matter couldn’t be taken up in the 48th and 49th meetings of the GST Council. The matter is now expected to be taken up in the meeting scheduled on July 11. While the matter is pending with the executive, the Karnataka High Court had quashed the proceedings by the GST department initiated against GamesKraft.

The Karnataka High Court held that  games offered by GamesKraft amounts to Games of Skill and should not be equated with gambling and betting for taxation purposes also.

Tax certainty helps any sector to grow to the fullest extent. Ambiguity in taxation aspects only acted as impediment of  growth of the gaming sector in the country.

It is the need of the hour to adopt a progressive tax policy to ensure the sector flourishes offering employment and growth opportunities to not only gaming but IT/ITES sectors as well. Studies also show that higher taxation often led to shady players (read black markets) taking market share at the expense of gaming operators who comply with law in their operations.