In August 2023, the Indian Parliament greenlit a fresh law mandating a 28% Goods and Services Tax (GST) on the total value of player deposits across online casinos, racecourses, and similar gaming platforms. This novel regulation is slated to become effective from October 1st, 2023.
A mere month following the legislation’s approval, India’s Finance Minister, Nirmala Sitharaman, publicly announced these changes during the 50th Council meeting. Her declaration clarified that this imposition of a 28% GST on gambling wasn’t intended to harm the industry, but rather emerged as a sensible response. It was perceived as ethically problematic to tax gambling at the same rate as essential commodities.
Regarding online gaming, the 28% GST shall apply whenever there’s a form of wagering involved. This encompasses scenarios like operators presenting no deposit casino bonuses, where there’s potential for monetary gains.
Impact of the 28% GST Tax on Online Gaming
Following the official implementation of the GST rules from October 1st, players engaging in games that entail wagering will be required to pay an additional ₹28 for every ₹100 spent on the game. This levy will be imposed on all online games featuring betting, regardless of whether they’re skill-based or chance-driven.
The online gaming sector has voiced its agreement that this new tax law will curtail their capacity to invest in fresh games, affecting cash flow and business expansion across the board. Even the Fantasy Gaming industry, on track to surpass ₹25,000 Crore in revenue by 2027, is bracing for significant setbacks.
Robert Landers, CEO of The All India Gaming Federation (AIGF), which presently represents companies like Nazara, GamrsKraft, Zupee, and WinZO, criticized this announcement as unjust, irrational, and unconstitutional. He highlighted that this decision sidesteps a 60-year-old law by conflating online skill gaming with gambling activities. Concerned about the adverse effects on the industry and its employment figures, Landers also remarked that the beneficiaries of this tax will be unscrupulous offshore platforms.
According to the official legislation, this tax will apply whenever wagering is involved but not to casual game hosting providers. Nonetheless, it’s crucial to bear in mind that presently, online gambling and betting games will face a 28% tax, while other games will be subject to a standard 18% tax on their gross gaming revenue.
GST vs. Foreign Direct Investment
Joy Battacharjya, Director General of the Federation of India Fantasy Sports (FIFS), emphasized that this decision would negatively impact the current $2.5 billion foreign direct investment and potentially impede future ventures. Additionally, this move might push players towards illicit gambling options, increasing the government’s exposure to risk and potential loss. Battacharjya stressed the necessity of distinguishing between skill-based games and gambling games in online casinos.
India’s E-Gaming Federation (EGF) warned that an added tax might lead to taxes outweighing revenues, stifling the gambling industry while bolstering underground operators at the expense of taxpayers.
Ashneer Grover, co-founder of BharatPe, a company that recently launched its own fantasy gaming platform, strongly criticized the government’s announcement, labeling it as a ‘death knell for the fantasy gaming industry.’
The GST Council’s Response
Discussion about the uptick in tax rates concerning horse racing, casinos, and online gaming had been introduced by Sitharaman earlier in July, following extensive dialogues with the Council. During a recent press briefing, she noted that the Council was open to conducting a performance review within six months of October 1st. This implies that all entities will have ample time to adjust their operations in alignment with the new GST laws, irrespective of their stance on taxation.