Skill gaming industry is concerned about additional cost burden as well tight timeline for the implementation of the new goods and services tax (GST) rate at 28 percent on deposits.
GST currently is levied at 18 percent on platform fees also known as gross gaming revenue of skill gaming companies.
Firms say that there will be additional cost for compliance, legal as well as communication due to implementation of the changes suggested by the GST Council at its 51st meeting.
“We will need legal advice and external consultants or tax experts to understand the nuances of the new regulations. The changes will also have to be communicated to players (users), which will require devising communication strategies and channels. This may entail additional costs. And ensuring compliance with the new GST regulations will require us to invest in updating billing and payment systems, integrating with the GSTN, and implementing new accounting and reporting procedures. This will lead to additional cost burden,” said an official of online gaming firm KickRummy.
The official, who did not want to be identified, said that the tax liability on deposits (amount paid at entry level or what users pay to access a game) will increase significantly compared to that under the current tax regime, and will lead to a larger portion of the player deposits (entry amount) being allocated to taxes. “Also, the extra cost associated with the implementation of the new GST rate and valuation is likely to be passed on to customers in the form of higher prices. This could lead to a decrease in demand for online gaming services,” the official added.
On August 2, 2023, while briefing the media after the GST Council meeting, Finance Minister Nirmala Sitharaman had said that the GST Act amendment to bring in 28 percent GST levy on the amount being paid as entry fees for online gaming would be taken up in the ongoing monsoon session of Parliament. The proposed amendment is likely to be introduced from October 1 after the necessary modifications to the central and state laws are made, Sitharaman had said.
Not enough time
Once the amendment on the new tax rate and valuation is passed at the central and state levels, it will become the law of the land that all gaming companies will have to comply with, said an executive of a gaming firm.
Some companies are saying that if the new changes for online gaming firms come into effect from October 1, there will not be enough time to fully implement all the required changes.
“We have started our planning, but we are still awaiting details and final notification from the government. Once the final implementation happens or basis the clarifications that we need are provided, we would actualise necessary processes. In a situation where we have no other choice, we will have to make do with the timeline given to us and implement the changes. But yes, this wouldn’t be easy as we will be working on a very tight timeline,” said Vinit Godara, co-founder and CEO, MyTeam11.
While the finance minister aims to achieve implementation of amendments to the GST Act at both the central and state level by October 1, the latter could take time, said the executive cited above. “As GST on deposit is not technically sound, gaming companies are planning to challenge it in court. This will be done after the amendments are passed at the central level and before the states have passed it. Companies are still trying to push for net deposit,” the executive said.
Required changes
Whether the October 1 deadline will be met for the GST implementation is not known, but companies have started planning for the changes that will be required for compliance. They will need to modify their billing and payment systems to incorporate the 28 percent GST on the actual cash or equivalent deposits made by players to initiate gameplay, the KickRummy official said.
“Then there will be system integration. We will integrate our online gaming platform with the GSTN to ensure seamless tax calculation and reporting on deposits made by players. We will need to update the company’s accounting and reporting systems to track and report the GST collected. This will require the development of new software and procedures. Also, our legal team will conduct a thorough review of the GST regulations to ensure that we are compliant with all applicable laws and regulations related to GST on deposits,” the official said.
The recent decision of the GST Council is very burdensome for online gaming companies, said Ankur Singh, CEO, Witzeal Technologies. “The structural change may restrict the entry of new players in the market. At this point of time, it has increased the cost burden tremendously,” he added.