GST rate increase will kill online skill gaming industry: associations

Associations also worry about tax being levied on total pool money, and not on the gross gaming revenue

All-India Gaming Federation claims that the Karnataka legislature lacks powers to ban games of skill in the online form when they are permitted in physical format by the apex court in interpreting the laws on gambling and betting. | Photo Credit: Getty Images

Raising the goods and servicse tax (GST) on online skill games from the existing 18% to 28% could cause the ‘demise’ of the industry in the country, cautioned three online skill gaming associations. The two-day meeting of the GST Council is currently on and the panel is said to be considering an increase in the tax rate on online skill games.

In a joint statement on Tuesday, the E-Gaming Federation (EGF), All India Gaming Federation (AIGF) and Federation of Indian Fantasy Sports (FIFS) said what was even more worrying was the apprehension of tax being levied on the total pool (prize money pooled plus the platform commission) and not on the gross gaming revenue (GGR).

The Implementation of these would mean the demise of the online skill gaming industry in the country. “Such a step is not only in dissonance with international best practices but is also violative of the principles of GST,” the associations observed.

Highlighting that the sector had potential to bring in significant economic benefits, the associations appealed to the GST Council to recognise the salience of games of skill and take a decision along best practices in international taxation.

“Global studies have shown that incidence of taxation, on prize money instead of gaming revenue, lead to reduced tax collections for the exchequer and ends up giving a fillip to black-market operators at the expense of legitimate tax-paying players,” clarified Anwar Shirpurwala, CEO of FIFS.

Essentially, the online skill gaming operators were platforms that brought players from various geographies together. The money pooled was eventually distributed to the winning player, explained Sameer Barde, CEO of EGF.

“The platform charges a predetermined fee, known as GGR, and pays tax on that. If you were to charge an increased tax rate on the entire quantum (pooled money plus commission), it is not only principally incorrect but will also annihilate this sunrise sector,” added Mr. Barde.

Over the last few years, the online skill gaming sector had emerged as a growth engine for the Indian economy with direct benefits to sectors such as fintech, sports, animation & graphics, semiconductor, edtech and software development, the associations pointed out. The sector had attracted foreign investment of more than $2 billion in the last five years, they said.