GST Council Implements a 28% Tax on Online Gaming, Raising Industry Concerns

Regardless of whether the games entail talent or are dependent on chance, tax would be applied to the total value.

Finance Minister Nirmala Sitharaman recently announced that the GST Council has agreed to levy a 28% tax on the revenue from online gambling, horse racing, and casinos. The decision is applicable to the entire face value of these activities and was made by a group of ministers (GoM) made up of representatives from all 50 states and the union territories.

The Debate Over Tax Calculation

The panel debated whether the tax should be based only on platform fees, the overall gaming income, or the face value of wagers. Sitharaman underlined that regardless of whether the games entail talent or are based on chance, the tax will be assessed on the whole value.

Industry worries about online gaming

This move comes after three proposals for the creation of Self-Regulatory Organisations (SROs) in the online gaming industry were submitted to the Ministry of Electronics and Information Technology (MeitY). These SROs seek to control and distinguish between gambling applications and skill-based online gaming.

The Federation of Indian Fantasy Sports (FIFS), a self-regulatory organisation that represents business partners including Dream11, Fantasy Akhada, and Guru11, expressed dismay and issued a warning about potential "irreversible damage" to the gaming sector. They suggested that the tax rise may result in a decrease in income, have an effect on job possibilities, and push consumers onto illicit sites.

A recent Esports Players Welfare Association (EPWA) survey revealed that 61 out of 100 online gamers may discontinue playing due to the anticipated tax hike. The proposed changes place additional strain on the gaming industry, potentially affecting foreign investments, career prospects, and related sectors.

Industry stakeholders, including the FIFS and Games24x7, raised concerns that the GST imposition on Contest Entry Amount (CEA) would render the legitimate online gaming industry financially unviable. They cautioned that consumers may shift towards offshore and illegal platforms, resulting in tax losses, outflows of foreign exchange, and job cuts.