Online gaming companies write to govt to reconsider 28% GST

Published on:

As many as 127 gaming startups and industry bodies have addressed an open letter to the government requesting to reconsider the GST rate for online gaming. Reportedly, the online gaming industry with a valuation of $20 billion is set to grow at a rate of 30% CAGR by 2025. Notably, there are more than 420 million gamers in India.

In the letter, the gaming companies mentioned that a 28% GST will not only halter the growth, but will also result in over one million job losses in the sector. In industry’s words, the decision will “reverse the growth trajectory” and can have “devastating implications” to startups without sufficient capital reserves.

Not only the tax rate was increased, the online real money gaming was clubbed together with betting and gambling industry. The letter also argued that this decision will also lead player using illegal offshore gambling companies.

As revealed by The Arc, the letter lists some major points that reveal the adverse effect the GST Council’s decision will have moving forward.

Firstly, the letter claims that the mentioned changes aren’t in sync with the “Digital India” and “Make in India” policy. Moreover, these changes severely hurt gaming startups, as they will have four to five times increase in taxation burden, thereby making matters worse for smaller companies.

As the companies will need to cut expenses to survive under the new tax rate, their employees might experience lay-offs. This might increase the unemployment rates in the country. Even after cutting corners, the tax burden will be shifted to players, resulting in increased cost of playing.

Gamers might shift to illegal platforms due to diminishing returns on legal ones

The shift of tax burden will ultimately lead to players leaving legal platforms due to diminishing returns. Many of them will shift towards illegal offshore websites that do not pay taxes and are financially harmful for them.

Further, pointing out about the gaming industry, the letter says that even with only one percent of the gaming market share, India has the highest game downloads than any other country, making it possible to become a gaming hub. But with increase in GST, the goal, unfortunately, might not be achieved. This will also lead to end of new startups and ultimately decrease the tax revenue.

Lastly, the letter claimed that the gaming companies end the note saying that they support the decision, however if the gaming sector is to survive, the tax rate should be levied on the gross gaming revenue (GGR). Taxing on GGR will also encourage foreign investor to invest in new gaming startups that will allow the county to compete globally.

While the gaming industry has opined regarding its take on GST Council’s decision, it remains to be seen if the authority will ever reconsider its decision to revise the tax rates on online gaming in the coming time.

Read the full letter here –