The Skill Online Games Institute (SOGI), backed by real-money gaming firms, has presented a compelling demand for the Indian government to revise its Goods and Services Tax (GST) policy on the burgeoning online gaming industry. Ahead of the 55th GST Council meeting in Jaisalmer, Rajasthan, SOGI’s advocacy for levying 28% GST on platform fees instead of player deposits highlights critical challenges and opportunities for both industry stakeholders and policymakers.
Industry Insights and Current Taxation Landscape
The online gaming sector in India is at a pivotal juncture, as articulated by Amrit Kiran Singh, President of SOGI. Despite its immense potential for job creation and GDP contribution, the sector faces significant hurdles due to taxation policies. As of October 1, 2023, a 28% GST is levied on deposits made on gaming platforms and casinos, a sharp increase from the previous 18% on platform fees. This change, intended to streamline tax collection, has led to unintended consequences:
Shift to Offshore Platforms:
83% of Indian players’ expenditures on online gaming now flow to offshore platforms, predominantly Chinese operators offering tax-free services.
Offshore platforms exploit the higher tax burden on Indian platforms, advertising GST- and TDS-free gaming during high-profile events such as the Cricket World Cup and IPL.
National Security and Revenue Concerns:
The surge in Indian players migrating to offshore platforms exacerbates revenue loss and raises national security concerns.
Efforts like media advisories, platform blocking, and mandatory registration for offshore operators have been largely ineffective due to practices like domain farming.
Industry Stagnation:
Current tax policies hinder the growth of Indian gaming companies, pushing the market towards illegal and unregulated entities.
Global Practices: The Case for a GGR Tax Model
SOGI has advocated for a Gross Gaming Revenue (GGR) tax model, which has proven successful in fostering online gaming sectors worldwide. Key benefits of the GGR model include:
Sustainability: Tax rates typically range between 15-20%, striking a balance between government revenue and industry growth.
Compliance: Encourages legal operations while disincentivizing migration to offshore platforms.
Higher Revenues: Countries using GGR have reported increased tax compliance and revenue compared to deposit-based models.
GGR is defined as the total revenue earned by gaming companies from bets, minus payouts to winners. Adopting this model could mitigate the adverse effects of deposit-based taxation.
SOGI’s Pragmatic Recommendations
Given the unlikelihood of revising GST slabs exclusively for online games, SOGI has proposed a practical compromise:
28% GST on Platform Service Fees:
This approach aligns taxation with the value-added by gaming platforms.
Reduces the tax burden on deposits, encouraging players to use domestic platforms.
Government-Industry Collaboration:
Joint initiatives to address addiction and other negative aspects of gaming.
Strategies to harness the sector’s potential for economic growth while ensuring ethical practices.
Challenges and Strategic Considerations
SOGI’s recommendations underscore the need for targeted policy interventions to:
Address Tax Arbitrage: Mitigate the appeal of offshore platforms by aligning Indian taxation with global practices.
Strengthen Enforcement: Enhance measures to compel offshore operators to register with Indian authorities.
Promote Domestic Platforms: Support local gaming companies through a conducive tax regime, fostering job creation and innovation.
Conclusion: A Call to Action
The online gaming industry represents a unique opportunity for India to boost its economy, create employment, and establish itself as a global leader in the sector. However, current GST policies risk undermining this potential. SOGI’s appeal for a shift to platform fee-based taxation is a pragmatic step towards addressing these challenges. It is imperative for the government to engage constructively with industry stakeholders to chart a sustainable and mutually beneficial path forward.
