In 2020, the Indian online gaming industry will be worth US$1.027 billion, up from US$543 million in 2016. According to the EY-All India Gaming Federation (AIGF) research ‘Online gaming in India – The GST conundrum,’ it is predicted to exceed US$2 billion in rake fees received by 2023 if it continues on its current path. Despite the fact that India is the world’s fourth largest online gaming market, the sector requires a stable regulatory and legal environment to allow it develop swiftly and reach its full potential. The paper outlines international tax best practises and provides much-needed clarity on issues such as valuation and GST rates.
India’s online gamers are expected to increase from 360 million in 2020 to 510 million in 2022. In addition, there are already over 400 gaming start-ups accelerating the sector’s growth. In India, however, determining whether a game is a “game of skill” or a “game of chance” has far-reaching legal repercussions for corporate operations. In comparison to a game of skill, a game of chance gets a higher GST rate. Online games either function on a rake fee model, in which the gaming platform charges a rake fee for facilitating games, or on a freemium model, in which the gameplay is free but additional features may require users to pay a monetary cost. As a result, a fair application of the Goods and Services Tax (‘GST’) is critical to the industry’s long-term viability.
“The online gaming business is developing at an amazing CAGR of over 20% and bears great potential for economic growth, job generation, and contributing to the Government’s objective of a trillion dollar digital economy by 2025,” said Bipin Sapra, Partner – Indirect Tax, EY India. It is critical that the GST regime for online gaming is kept sensible and on par with other digital platforms in order for the business to reach its full growth potential. Adopting internationally consistent standards in our tax treatment of the industry will allow it to reach its full potential.”
“Valuation conflicts under GST law have been a dampener to the industry,” said Roland Landers, CEO of the All India Gaming Federation. Given the size of the market and future development estimates, the online gaming business is expected to make a substantial contribution to the government’s vision and create future economic avenues, especially given the pervasiveness of digital trends in our daily lives. It is critical to emphasise that regressive taxation of these burgeoning industries may only render them unsustainable in India. Our advice is that the tax authorities match their rules with internationally accepted principles for taxing the online gambling sector in order to give the industry more stability. We believe that this research will provide useful information and serve to bring attention to the sunrise industry.”
To fully tap into the potential of the online gaming industry, it is advocated that it be taxed at conventional GST/VAT rates, just like any other sector of the economy.