Open Letter from Over 100 Companies Urges Indian Government to Reverse 28% Tax on Online Gaming

The government’s recent decision to levy a high 28% Goods and Services Tax (GST) on online gambling, casinos, and horse racing has prompted significant alarm among 127 gaming companies, sending shockwaves across India’s booming gaming industry. The unexpected move has sparked a united front from businesses, who are pressing the government to reconsider its attitude. The open letter also urged for a clear delineation between skill-based gaming and chance-based gambling to ensure fair laws, citing fears of severe implications for Micro, Small, and Medium Enterprises (MSMEs) and startups.

The 127 companies, which include well-known brands such as Baazi Games, Dangal Games, and Gameskraft Technologies, have expressed grave concern about the potential impact of the new tax policy. Companies will be subject to a 28% tax on all revenue earned from players under the updated legislation, rather than the lower fee previously imposed for offering games. This significant tax hike could signal disaster for MSMEs and startups who lack the financial buffers to withstand such a severe financial shock.

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The consequences go beyond business, with investors worried about the move’s influence on investor confidence. According to experts, such a high tax system deviates from global standards and may result in a considerable decrease in funding opportunities, inhibiting the industry’s growth. The open letter stressed the risk of diverting gamers to illicit offshore gambling operators, endangering legitimate firms and undermining the government’s efforts to maximize tax collection from the gaming sector.

According to the report, India’s online skill game business is worth $20 billion, with $2.5 billion in sales and $1 billion in annual taxes. It has grown rapidly, with a projected 30% compound annual growth rate (CAGR) to reach $5 billion in revenue by 2025. Furthermore, the number of Indian internet gamers has increased dramatically, rising from 360 million in 2020 to more than 420 million in 2023. Between January 2021 and June 2022, the gaming business garnered more than $1.5 billion in Foreign Direct Investment (FDI), suggesting its potential as a big player in the country’s digital economy.

The total tax collection on player winnings is expected to exceed 50% with the upcoming tax implementation, which includes GST, platform commissions, and income taxes. This means that for every $100 a player spends, $28 goes towards GST, on top of a $5-15 platform fee and a 30% tax deduction at source (TDS) on profits. This significant burden on players may discourage participation and radically alter the gaming scene.

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The gaming industry’s protest has become louder in response to the government’s decision. Sudipta Bhattacharjee, a partner at corporate law firm Khaitan & Co, stated that the decision is contrary to worldwide rules and could undermine investor confidence. Meanwhile, Poker High promoter Gaurav Gaggar bemoaned the decision, claiming that it has delivered a significant blow to the multibillion-dollar sector while potentially boosting illicit operators.

Nirmala Sitharaman, India’s Union Finance Minister, stressed that the application of the maximum tax on online gambling and casinos was not intended to ruin the business. Instead, she cited the “moral question” surrounding gaming as a reason why it should not be taxed at the same rate as basic commodities. Sitharaman also mentioned the practical difficulties in answering industry demands for the imposition of a tax on platform fees, which makes it difficult for tax officials to follow every player’s betting activity.

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