BY: Pankaj Bansal , Founder at NewsPatrolling.com
The new Goods and Services Tax (GST) law in India has significantly impacted the skill-based online gaming industry. From October 2023, a 28% GST is levied on the total value of player deposits rather than just the platform fee or Gross Gaming Revenue (GGR). Previously, skill-based games were taxed at 18% on the platform fee, while prize pools were exempted. However, the distinction between skill-based and chance-based games has been removed under the new regime, placing them in the same category as gambling, casinos, and lotteries.
This shift has increased the financial burden on online gaming platforms and players alike. Many gaming platforms initially absorbed the higher taxes, but as the costs rise, they may pass them on to players, leading to increased participation costs and potentially lower prize payouts. Additionally, this new taxation model is expected to reduce margins for gaming companies and could influence user behavior by making some games less attractive.
The government justifies the new GST policy by citing the need for consistent tax collection across the growing online gaming industry, contributing to increased revenue
. However, critics argue that it could stifle growth in an industry already grappling with compliance costs and competition pressures.
The new 28% GST rate imposed on online gaming, regardless of whether the game is based on skill or chance, has significant implications for the industry. The key points include:
- Removal of Distinction: Earlier, games of skill were taxed at 18% on the platform fee (Gross Gaming Revenue, or GGR), while player prize pools were not taxed. The new law eliminates the distinction between skill-based and chance-based games, applying the 28% rate to the total amount players deposit on gaming platforms
- Impact on Platforms: Online gaming companies are now taxed on the entire face value of deposits, not just the service fee. This has resulted in a higher compliance burden for operators, including detailed record-keeping and frequent tax filings. Many platforms initially absorbed the costs to remain competitive but may eventually pass these expenses to players, affecting the industry’s margins
- Impact on Players: The new tax regime means players face higher participation costs and potentially reduced prize pools. For example, platforms now pay 28% GST on all deposits, which could shrink player winnings or increase the cost of playing
- Government Perspective: The government expects increased revenue from the online gaming sector, which has been growing rapidly. The move is also seen as a way to standardize taxation across similar industries, such as betting and casinos, and to improve tax enforcement
- Industry Challenges: The online gaming sector faces multiple challenges due to the higher tax burden, such as increased operational costs and reduced player engagement. The lack of distinction between games of skill and chance has also raised concerns about stifling innovation and market competitiveness
Despite these challenges, industry leaders are working to adapt, but the long-term impact remains to be seen.