The investors want the GST council to maintain the 18% rate on gross gaming revenue
The GST Council has recommended levying a GST of 28%
The investors have argued that such a high tax rate will lead to value destruction of the sector and may impair legitimate business models
Global investors, especially gaming startups backer, have written to the Finance Minister to maintain the 18% GST on gross gaming revenue (GGR)
According to an ET report, the group of global investors include key Alpha Wave Global’s Navroz Udwadia, Sequoia’s Rajan Anandan, D1’s Dan Sundheim, Malabar IA’s Ashish Gulati, Kalaari Capital’s Vani Kola, Raine Group’s John S Salter, Steadview’s Ravi Mehta. These investors have backed several gaming firms including Dream11, MPL, Games24x7, and many more.
In a letter to the Finance Minister, the investors argued that the proposed tax structure could make the business model of legitimate operators unviable and lead to a proliferation of illegal operators. Currently, GGR is taxable, but the investors fear that total deposits or contest entry fees could also fall under the 28% GST blanket.
They also stated that the move could cut short the growth path and lead to value destruction in this sector. The investors fear a significant reduction of investments in startups and revenue to the exchequer.
“Such a scenario could lead to an investment drought, crippling Indian gaming companies’ expansion, research, and development plans,” they wrote.
Inc42 couldn’t independently verify the contents of the letter.
It comes after the government is reportedly looking to hike the tax rates for online gaming from 18% to 28%. However, there has been no consensus regarding the tax levy on GGR or the total value of the transaction.
The government is reportedly looking to submit its report on the GST levy on online gaming, casino, and horse racing by mid-August.
Debating The Repercussions Of 28% GST
The debate over taxation of total transaction value vs net commissions (GGR) has been a never-ending one. Previously, the IAMAI also appealed to the government and the GST Council to maintain the status quo for the skill-based gaming industry.
IAMAI had contested that the imposition of 28% GST on GGR would increase the incidence of taxation to about 55%. “This would be patently unfair for an industry which is considered a legitimate trade – profession and not a game of chance,” the self-regulatory body stated.
Talking about the global implications of the tax regime, it claimed that such a high tax slab would make the businesses unviable for a vast majority of players; that several jurisdictions in the EU, the UK and the US levy tax only on the GGR.
India’s online gaming segment is growing 28% year-on-year and has reached a market size of INR 101 Bn in 2021. Further, real-money gaming comprised over 70% of segment revenues. But the legality of the industry has been a topic of discussion for years now, with a very thin and overlapping line of distinction between skill-based and chance-based games.
The GST Council has recommended levying a GST of 28%, which stakeholders have debated to be quite high. Currently, a tax rate of 18% is levied on the commission collected by online gaming platforms for games not involving betting or gambling, whereas it is nil for contest entry fees (CEF).
