Higher taxation for online real money gaming to result in reduced collections, lead to job losses: Deloitte FIFS Report

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Consumers are expected to reduce spending if online real money gaming is taxed at 28% of the contest entry amount (CEA). The higher taxation if implemented will see migration of consumers to offshore / grey markets, said a report by Big 4 audit firm Deloitte released in association with industry association FIFS.  This shift to offshore websites exposes consumers to potentially harmful markets without access to a grievance redressal mechanism. Indian gaming entities are required to comply with requirements of online gaming rules while offshore entities are outside the ambit of the Indian regulators.

The report said the industry is poised to grow at 38% CAGR if a conservative tax regime of 18% GST on Gross Gaming Revenue (GGR) is adopted by the government.

The report referred to the taxation practices in countries like UK, France, Denmark, and concluded that GGR tax model enables the industry to remain viable and flourish, whereas the CEA-based taxing model gradually drives consumers to offshore gaming platforms and may impact the industry negatively.

The GST Council, an apex decision making body for indirect tax in the country is scheduled to meet on July 11 and expected to deliberate on the taxing issue surrounding online gaming, race courses and casinos.

The report said Indian gaming industry has a workforce of 50,000 employees. Out of these 30 percent or 15,000 employees are programmers and developers. The increase in tax liability on the online gaming industry is expected to have severe consequences, particularly for the numerous gaming startups in the sector resulting in job losses if these gaming startups hit by the higher taxation shuts down.

According to the report, the tax revenue collected from the increased rate of 28 percent on CEA is projected to reduce tax collections substantially over the years due to factors, such as the consumer shift to offshore platforms and potentially reduced participation in the regulated domestic market.