Online gaming companies say only illegal platforms will gain from 28% GST

Companies in the online gaming space – which has attracted investments from marquee venture funds including Tiger Global – had earlier lobbied for imposition of GST on the gross-gaming revenue, which is the fee collected by gaming platforms from users playing real-money games.

Addressing a press conference on Tuesday, finance minister Nirmala Sitharaman said the decision of the GST Council looks at what has to be taxed at what rate.

“Whatever be the decision on each of the games being either skill-based or chance-based or neither is not something we’re looking at. We are purely looking at that which is being taxed…because it creates value, profit is being made, wagers are being levied… and based on the wager people are making windfall. Today’s decision looks at that aspect,” she said.

Bhavin Pandya, cofounder and co-chief executive officer of Games 24×7, said the move would “effectively drive consumers towards offshore and illegal platforms that pay no taxes, resulting in a loss of taxes and outflow of foreign exchange”.

Online gaming is among the rare segments of new economy startups in India that have been able to turn profitable. According to a joint report by the Federation of Indian Chambers of Commerce & Industry and EY, online gaming companies clocked revenue of Rs 13,500 crore in 2022. The report estimated the segment to report revenue of Rs 16,700 crore in 2023 and Rs 23,100 crore in 2025, gross of taxes.

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Two of the largest companies in the segment – Dream11 and Gameskraft – reported profits. For the year-ended March 31, 2022, Dream11 reported a 50% increase in its operating revenue to Rs 3,840.75 crore, with a net profit of Rs 142.86 crore. Gameskraft also reported a nearly 50% jump in its operating revenue to Rs 2,112 crore, with a profit of Rs 937 crore, 28% higher year on year.Speaking to ET, a spokesperson for Bengaluru-based Gameskraft said: “Companies will be forced to set up shop abroad. They were creating jobs, and right up to this point, everything was being done to support the online gaming industry.”

“One of the options that we will give a serious look at will be a legal recourse. It’s a little early to decide…but we will definitely talk to other big players in the industry and decide what we need to do,” the spokesperson added.

The industry said the move could also lead to “lakhs of job losses”.

“We believe this decision by the GST Council is unconstitutional, irrational, and egregious. The decision ignores over 60 years of settled legal jurisprudence and lumps online gaming with gambling activities,” said Roland Landers, CEO of the All India Gaming Federation, which represents companies such as Mobile Premier League (MPL), Zupee, Gameskraft, Paytm First Games, etc.

“This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses and the only people benefitting from this will be anti-national illegal offshore platforms,” he added.