Online Gaming Industry Appeals to Government to Lower Taxes

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Online Gaming Industry Appeals to Government to Lower Taxes
15 Jul 2023
5 min read

News Synopsis

Online Gaming Companies Seek Tax Reduction for Sustainable Growth

Online gaming companies in India are calling on the government to reevaluate its decision to impose a 28% tax on online gaming, as announced by the GST Council.

This move has sent shockwaves through the industry, leading to appeals from industry bodies, game developers, and online skill gaming companies to Prime Minister Narendra Modi's office and other relevant ministries for a reconsideration of the tax hike.

The industry, while acknowledging the importance of contributing to the nation's development, highlights the potential adverse effects of the increased tax burden.

In a letter outlining their concerns, the industry expressed dismay at the substantial tax hike from the existing 18% rate on platform fees. This significant increase would result in a staggering 55% rise in GST payments, placing a heavy burden on the sector.

The industry acknowledges the tax's potential contribution to nation-building but suggests that it should be limited to the platform fees earned by the industry.

This approach aligns with the taxation principles applied to other technology service platforms, where only the revenue earned by the platforms is considered for GST levy.

The gaming industry in India has attracted substantial foreign direct investment (FDI) of approximately $2 billion since 2014. Industry representatives argue that charging GST on the full deposit value could reverse the industry's growth trajectory, leading to severe consequences such as business shutdowns for micro, small, and medium-sized enterprises (MSMEs) and startups lacking the necessary capital reserves to withstand such unprecedented tax increases.

Additionally, the industry warns that this decision could potentially encourage illegal offshore gambling operators, diverting Indian users to unregulated platforms and undermining both optimal tax collection and the growth of the legitimate industry.

The industry's concerns are further detailed in eight key points outlined in the letter, urging the Prime Minister's office to reconsider the current tax proposal.

They argue that the implementation of the new tax structure could hinder the Digital India Initiative and the Prime Minister's vision by inadvertently promoting black market activities and increasing the risk of criminal offenses due to the significant 400-500% increase in the GST burden.

Furthermore, there is a growing apprehension that the tax change could benefit offshore gambling sites, resulting in substantial tax losses for the government while exposing Indian gamers to unregulated platforms.

The industry also fears that the proposed tax increase could deter foreign investment. Initially, the Ministry of Electronics and Information Technology's decision to include online gaming intermediaries within its scope was well-received, with the potential for significant FDI inflows.

However, the new GST proposal threatens to cripple potential domestic and foreign investors' confidence in considering the online gaming sector in India as a viable investment destination, thereby jeopardizing the current investments of over $2.5 billion.

The online gaming industry's plea to the government highlights the potential ramifications of the proposed tax levy, emphasizing the need for a balanced approach that supports the growth of the legitimate industry, encourages investment, and safeguards the interests of Indian gamers.

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