Major Disruption: 28% GST Implementation on Online Gaming Shakes Industry Landscape

In a significant move that has sent shockwaves through the online gaming industry, the 28% GST regime officially took effect on October 1. This decision, as notified by the finance ministry, has resulted in tax notices totaling INR 1 Lakh Cr being served to online gaming firms, marking a substantial increase in their financial burden.

Earlier this year, the GST Council had declared its decision to impose a 28% GST on the entire entry-level payment for online gaming, aligning with the governments’ efforts at both state and central levels to regulate real-money gaming online. This decision has led to layoffs and closures within the industry.

The recent amendment, implemented on October 1, categorizes online gaming, horse racing, and casinos as “actionable claims” under the GST Act, treating them similarly to lottery, gambling, and betting.

The GST Council’s decision was part of a broader initiative to regulate online gaming, and amendments to the Central Goods and Services Tax (Amendment) Bill, 2023, and the Integrated Goods and Services Tax (Amendment) Bill, 2023, were approved in August and later by Parliament.

Key Changes Under the New Regulations:

  1. A uniform 28% tax on the full value of bets, regardless of the nature of the game (skill or chance).
  2. Previously, only an 18% GST applied to the platform fee for skill-based games, but now the 28% GST is applied to the entire bet amount.
  3. This significant increase represents approximately a 1,000% jump in GST payments for online gaming companies.

In addition to the tax changes, the government has introduced specific rules for online gaming companies operating in India, including registration and compliance requirements. Industry leaders and startups have expressed deep disappointment, believing the new regulations will have a detrimental impact, risking the survival of the entire sector.

Malay Kumar Shukla, secretary of E-Gaming Federation, stated, “Charging a 28% tax on the full face value will lead to a nearly 1000% increase in taxation and prove catastrophic for the industry.”

The All India Gaming Federation (AIGF) echoed similar sentiments, expressing concerns that the valuation on deposits would severely impact the online gaming sector, rendering many players, including MSMEs, unable to survive under the increased tax liability.

Industry Turmoil and Consequences:

The implementation of the 28% GST has already resulted in severe consequences across the online gaming sector. Startups, including Gameskraft, Quizy, and Fantok, have either ceased operations or temporarily suspended them, while prominent players like MPL, Hike, and Spartan Poker have had to lay off employees due to the financial impact.

Adding to the distress, several online gaming startups, including Dream11, Head Digital Works, Games 24×7, and Nazara, have received retrospective tax notices from the Directorate General of GST Intelligence (DGGI) for alleged tax evasion.

In summary, the online gaming industry is facing an unprecedented challenge, grappling with layoffs, closures, and the looming threat of substantial tax liabilities.

Source: Inc42

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