Online Gaming

Ahead of the 50th GST Council meeting, the eSports Players Welfare Association (EPWA) has released a report shedding light on the flourishing virtual gaming industry. In the upcoming meeting, the Group of Ministers is expected to consider bringing online gaming within the purview of the 28% GST slab. While the current GST rate of 18% is applied only to the platform fee, the proposed change suggests imposing a 28% GST on the total amount deposited by players to gaming companies.

Expressing concerns about this development, Shivani Jha, the director of EPWA and a Tech Policy lawyer, expressed hope that the council of ministers would take fair measures to prevent an increased GST from discouraging players from participating altogether. Jha emphasized the distinction between gamers and gamblers, advocating that gamers should not be taxed in the same manner as gamblers.

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According to a report by the eSports body, the Indian online gaming industry is experiencing an annual growth rate of 30%, making it one of the fastest-growing segments in the media and entertainment sector. India accounted for 19.2% of global game downloads as of May 2022, with a compound annual growth rate of approximately 22%. In 2021, the country boasted a staggering 390 million online gamers.

The potential implications of a 28% GST on online gaming companies are significant. The EPWA survey indicates that if policymakers proceed with the tax increase, 61 out of 100 online gamers may discontinue playing. For professional gamers like Zerah, who is also the CEO of Lxg, online gaming is a livelihood, and the proposed GST hike is viewed as a deterrent. The increased tax burden on gaming companies would include portions of the money that do not contribute to their revenue generation.

In light of these concerns, the EPWA recommends that policymakers reconsider the GST structure and continue levying tax only on the Gross Gaming Revenue (GGR), rather than the entire amount. The legislation should recognize that online gaming relies on skill rather than mere chance. Citing a recent ruling by the High Court of Karnataka in the case of Gameskraft Technologies Private Limited v. Directorate General of Goods Services Tax Intelligence, the EPWA highlights the need for a clear distinction between online gaming and activities such as betting, gambling, and lotteries. The court held that online rummy differs from traditional forms of gambling, and GST should only be charged on contest entry fees at a rate of 18%.

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The gaming industry warns that higher taxation could diminish the appeal of skill-based online gaming and potentially impact Foreign Direct Investment, existing and future employment opportunities, marketing investments, IT services, and ancillary industries.

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