11.11.2021- Online gaming firms wary of higher GST rate; say tax on prize money will impact business

It was reported last month that the government may consider a single tax rate for online gaming companies and will also ascertain whether goods and services tax (GST) should be applicable only on the amount retained by the platform or also be levied on the prize money.

Reactions from companies in the field have been cautious, with apprehensions over which tax slab gaming firms will fall under.

Tarun Gupta, founder, Ultimate Battle, an online e-sports platform, said that having a single tax rate on the gaming industry will help it grow.

However, he also pointed out that central legislation defines the laws pertaining to games of chance that have a tax rate of 28 percent. “Games of skill don't fall under the ambit of gambling and gaming laws. A GST rate of 18 percent is applicable as per the industry standards,” he said.

Aakash Taneja, product head at GMNG, a gaming platform, said, “A uniform tax rate is the best way to move forward for ease of understanding and execution both for the platforms as well as its users.” Taneja added that the current GST mandate for online gaming hasn’t been defined very clearly and leaves quite a bit of scope for misinterpretation.

Kishore Palakodeti, marketing manager, OpenPlay Tech, a gaming company that was recently acquired by Nazara Technologies, said that clear differentiation should be maintained in applying the tax rate between skill-based gaming platforms and others.

“Matured and regulated gaming markets across the globe levy an average tax rate of 20 percent on revenues,” he added.

While industry players are expecting online gaming to come under the 18 percent GST slab, there are concerns that gaming might fall under highest tax slab of 28 percent.

Taneja said that bringing online gaming under the 28 percent slab will put a lot of pressure on the online gaming industry which is still at a nascent stage in India. “Making the business unsustainable would surely be a deterrent for future investments,” he added.

Ultimate Battle’s Gupta noted that 28 percent GST on the amount retained by a platform will be detrimental to anyone who wants to enter the industry. “Platform fees are normally a small amount” and are sustainable only on large volumes, he said.

Sunil Yadav, CEO, PlayerzPot, a fantasy sports platform, agreed that a higher slab will weigh on online gaming platforms as their fees are inclusive of GST. “However, the impact of the same can be offset by increasing the margin of platform fees charged to the users,” he said.

But a higher fee could adversely affect the growth in new users.

Platforms are concerned about whether prize money will be taxable. Yadav explained that online gaming firms collect a fixed amount from each player for the services offered and pool such amount collected as ‘stake fee’.

“Out of such stake fees, a certain portion is deducted and retained by the online gaming company as ‘platform fee’/‘rake fee’/‘gross gaming revenue’, and the balance amount is pooled under an escrow account, which is distributed as prize money to the winners. This platform fee is taxable under GST in online gaming,” he said.

Adding to this, Gupta said that it should be noted that money being distributed to gamers/players is not a revenue for the platform and tax deducted at source is applicable on the prize money. “Levying extra taxation on prize money will be detrimental for gamers and gaming platforms,” he said.

Yadav however said that while gamers will receive a lower amount as winnings compared to the present scenario if GST is levied on the prize money, not much impact is expected for the gaming company.

But both Palakodeti and Taneja believe that taxing prize money will put a heavy burden on the industry.

“Levying GST on the entire wagered amount or prize money will make this industry financially unviable for both the operators as well the gamers,” said Taneja

And this, Palakodeti said, “will impact the growth of the Indian gaming industry which is one of the fastest growing online gaming markets”.

SOURCE: Money Control

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