Online casual skill gaming companies wrote to the Ministry of Finance and all GST Council members on July 28, seeking distinction on tax treatment from fantasy sports citing differences in business models and how revenues are generated. They said that high taxation will lead to the shutdown of more than 120 online skill gaming companies.
The companies also pointed out that users of online skill gaming will move to offshore platforms for entertainment as they will not have any winnings left due to high taxation.
The industry highlighted that fantasy sports, with guaranteed prize pools, are taxed differently from online skill gaming globally. In the recommendation, the companies cited taxation in UK where there is standard VAT (value added tax) of 20 percent (on GGR- gross gaming revenue) on online casual games of skill while fantasy sports is taxed at 21 percent of GGR. In Australia, online casual games of skill attract GST (goods and services tax) of 10 percent on GGR and fantasy games are taxed at 15-20 percent of GGR.
The gaming companies with a combined user base of over 400 million users, urged to not be clubbed with games of chance in their submission. They also highlighted in this representation that GST on deposits would result in closure of all continuous game formats that have very weak price elasticity as up to 75 percent of the deposit money is withdrawn back by the user in a way of winnings. The gaming companies also confirmed submitting this information to the Ministry of Finance for their consideration.
The proposed 28 percent GST rate on the full value or deposit poses a severe threat to the online skill gaming industry’s survival, particularly to startups currently in the research and IP (intellectual property) generation phase. Many of these companies are incurring losses, and the new GST structure could lead to their immediate collapse, the companies said in their recommendation.
They have urged the GST Council to look into the distinction in the business model of the casual gaming segment even if played for a small entry fee, which has the largest user base in the country and pays 50 percent of the Rs 2,000 crore annual GST paid by the online gaming sector.
To mitigate the potential repercussions and preserve the online skill gaming sector, industry representatives are seeking urgent discussions with the GST Council to advocate for a more sustainable tax structure that acknowledges the unique characteristics and potential of the sector, the companies said.
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