Real money gaming firms-backed Skill Online Games Institute (SOGI) has demanded that the government levy 28 per cent GST on platform fees instead of on deposit for gaming companies in India, to prevent offshore platforms from taking advantage of significant tax arbitrage. The demand comes ahead of the 55th meeting of the GST Council in Jaisalmer, Rajasthan on Saturday.

In an interview with PTI, Amrit Kiran Singh, President of SOGI, said the online gaming industry is in a nascent stage and the government and industry need to work together to harness the full positives of this industry for the economy and country.

“SOGI has approached the Indian government to put forward its recommendations that will allow India to harness the full potential of this huge industry for creating jobs and contributing to its GDP while simultaneously mitigating negative aspects of such as addiction,” he said.

Starting October 1, 2023, deposits on online gaming platforms and casinos attracted 28 per cent GST (goods and services tax). This marked a significant increase from the previous 18 per cent on platform fees.

Offshore gaming platforms were also mandated to register with GST authorities and pay taxes, failing which the government would block those sites.

“As a result of the higher tax burden, Indian players have increasingly turned to offshore platforms, especially Chinese platforms, which advertise GST and TDS-free offerings during high-profile events like the Cricket World Cup and IPL. 83 per cent of funds spent by Indian players on online games are flowing to offshore platforms, with only 17 per cent remaining with Indian platforms,” Singh said.

The increased GST has unintentionally pushed Indian players toward illegal gambling sites, further exacerbating national security concerns and revenue loss for India, he added.

“Measures like media advisories, platform blocking, and attempts to force offshore platforms to register in India have proven ineffective, as these platforms easily circumvent restrictions and continue to attract Indian players. The government has failed to get offshore platforms to register with Indian authorities over the past 13 months,” Singh said.

Blocking and banning are completely ineffective in the digital space due to ‘domain farming', he said. Domain farming refers to the practice of acquiring and managing multiple domain names.

It is high time that the government addressed the elephant in the room–the increase in GST has caused an enormous tax arbitrage with offshore platforms, Singh said.

“Most countries with successful online gaming sectors use the Gross Gaming Revenue (GGR) tax model, with rates between 15-20 per cent. This model supports industry growth, compliance, and higher tax revenue, while deposit-based taxation drives businesses to offshore, illegal operators,” he said.

GGR is the total amount of money a gaming company earns from bets minus the amount paid out to winners.

“Existing GST slabs are unlikely to be changed exclusively for online games. While we would ideally like the GST to be taken back to 18 per cent, we have taken the pragmatic path and recommended the 28 per cent slab on the Platform Service Fee. It will be a very significant improvement on the current 28 per cent on deposit situation,” Singh said.

SOGI has also advocated a government-industry collaboration to mitigate the negative aspects of the industry, he added.