Online gaming companies with real-money games are facing difficulties due to recent tax issues. Last year, authorities issued 71 notices for tax evasion for periods before October 1, when a 28% GST rate was set on the full value of player deposits. Before this, companies paid an 18% tax on platform fees, which were typically 5-20% of deposits.
The government has approached the Supreme Court to challenge a lower court order that favored the industry. The GST Council was expected to discuss the tax demands’ impact on the industry’s viability.
Saumya Singh Rathore, co-founder of the gaming platform WinZO, expressed hope that their urgent plea would be addressed, but officials believe it’s unlikely at the Saturday meeting. The GST Council will instead discuss changes to GST laws, business ease improvements, and prepare for the upcoming Finance Bill.
The GST Council meeting and the Union government’s budget consultations with state finance ministers are both set for Saturday. These meetings will help the government gauge the states’ mood and expectations from the National Democratic Alliance’s third term.
Officials mentioned that the government aims to show that reforms and business ease measures will continue. Some tax rate changes might be decided, but no major rate rationalization is expected.
M.S. Mani, a partner at Deloitte India, mentioned that businesses hope for the next phase of GST reforms, including reducing rate slabs and including petroleum products, to start at the June 22 meeting. The Council may also consider lowering the upfront fee for filing appeals to the GST Appellate Tribunal from 10% to about 7% of the disputed tax amount. Additionally, improving the GST registration process to prevent tax evasion may be discussed.
Another GST Council meeting is expected in August after the Union Budget in July.
Challenges for the Online Gaming Industry
Experts say that policymakers need to create a regulatory landscape that considers the macroeconomic impact. India has about 425 million online gamers, the second-largest number globally after China. An EY report indicated that the real-money gaming segment’s market share is expected to drop from 83% in 2022-23 to 75.4% by 2027-28 due to the retrospective tax demand.
The overall online gaming market’s growth rate is expected to slow to 15% CAGR until FY28, after growing at 28% CAGR from FY20 to FY23, reaching ₹16,428 crore. The real-money gaming segment in India includes more than 400 startups.
John Joseph, former chairman of the Central Board of Indirect Taxes and Customs (CBIC), noted that retrospective GST demands have decreased investor confidence and business ease. He stressed the need to resolve issues related to notices from the Directorate General of GST Intelligence (DGGI).
Industry representatives said the increased tax burden is straining the sector. Rathore of WinZO highlighted that the gaming industry is facing severe challenges, with companies struggling to retain gamers, leading to consolidation and pushing startups out. Many startups have already shut down, laid off employees, and are experiencing stagnant revenues.
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