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31.07.2023: Gaming companies differ on tax formula ahead of GST Council’s second meet

As the GST Council is set to meet for a second time in less than a month to discuss taxation of online gaming, a difference of opinion has emerged among the companies in the segment, which had earlier been opposing the levy unilaterally.

While some of the large companies are now learnt to be ready to accept the proposed 28% tax and are batting for the levy to be applicable on the value of the deposits made by players to avoid repetitive taxation, several smaller companies are of the view that appeals should be made for the tax to be levied on the gross gaming revenue (GGR) as initially sought by the industry.
“Some platforms feel that it’s not practical to attempt and seek GST on GGR … that ship has sailed. But there are some companies who want a relook. These are desperate times for some such companies … those without a lot of revenues or profits may get wiped out,” a person aware of the developments said.
The difference in opinion emerged amid an attempt to arrive at an agreement about the final representation to be made to the government ahead of Wednesday’s GST Council meeting, this person added.
The council will meet virtually to consider issues such as repetitive taxation in determining the full face value of games for imposing GST.
The issue was debated last week by top industry executives at a meeting of the gaming committee of the Federation of Indian Chambers of Commerce and Industry.
“It isn't incorrect that there is some resentment among smaller players that they are being given the raw end of the stick,” an industry insider who did not wish to be named told ET.

“There is a feeling of these big players taking an opposing stance that is detrimental to a large portion of the smaller players in the space,” this person said. This, he said, was why the distinction between large-size tournaments and quick continuous gaming, as sought by the All India Gaming Federation (AIGF), caused an uproar during the meeting.

The AIGF last week wrote a letter to the finance ministry, proposing to divide online gaming into ‘large-size tournaments’ vs ‘quick continuous games’. “Majority of our members provide quick continuous games which offer an extremely weak price elasticity as up to 75% of deposits are withdrawn by the players as winnings,” the letter said.

The lobby group, which represents Mobile Premier League (MPL), Gameskraft, Winzo Games, Zupee, and several other fantasy and card game platforms, has argued that regardless of the manner in which the tax is levied – once or in a repetitive way – “it will result in the closure of most of the industry, including MSMEs, gaming startups, and even established significant players”.

Responding to queries, the AIGF told ET that it always advocated for all games of skill and for the entire industry. “We believe that a valuation on deposits may allow only the very large players to survive and lead to closure of the majority of MSME startups. Even the companies that manage to scrape through, their revenues and valuation will be substantially impacted.”

Valuation refers to the amount on which the GST will be levied.

The AIGF has proposed that the tax be made applicable on net deposits, which is the deposits made by the players net of the withdrawals, for all formats of skill gaming. “This will result in increased revenue for the exchequer, while allowing all companies, even the MSMEs, to grow … It is our belief that the overall online gaming industry will also support this valuation methodology,” it said.

Companies had sparred prior to the GST Council’s decision as well when a group of big firms said they were onboard with the tax being 28% as long as it was levied on GGR. “Any increase in tax, whether on the quantum or on which part it is being levied, will affect the whole industry…but some of the stronger players will find it relatively easier to survive,” another company executive said.

In response to ET’s queries, industry bodies Federation of Indian Fantasy Sports and E-Gaming Federation that represent large platforms such as Dream11 and Games 24×7, said in a joint statement: “We have consistently advised that if there are any changes to the GST for the online skill gaming industry, the valuation should continue to remain on the GGR as it has been over the last decade. It will be the most desirable approach which is aligned with the internationally accepted and proven practices.”

“Any alternative on valuation, whether on entry fees or deposits, will severely impact the industry across the spectrum along with 40 crore Indian gamers,” it added. “28% GST on deposits will be a 350% increase to the GST levied. This will result in the closure of most of the smaller operators and will necessitate major restructuring across the industry to survive and will set back even the larger operators by several years,” the joint statement said.

On July 26, a group of video game developers had also written a letter to the government urging separate treatment from the online gaming industry from a policy perspective.

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