Hey there, gamers! We have some shocking news for you. The online gaming industry in India, which has been growing rapidly, is about to face a significant tax burden. Let's dive into the details.
India has seen a massive surge with a 28-30% annual growth rate in online gaming over the past few years, with millions of players joining in. According to Forbes India Report, there are about 40 Crore online gamers in India; among these, around 9- 10 Crore are regular gamers.
What’s up in India?
In the 50th finance meeting on July 11, 2023, Finance Minister Nirmala Sitharaman announced that there will be a 28% tax on online gaming, horse racing, and casinos in India.
How does this impact the Gaming Industry?
This tax imposition will have a considerable impact on the gaming industry. Previously, gaming start-ups paid a small tax on the fees they charged for offering games. But with the new tax, the entire amount collected from players will be subject to taxation. This means that for every Rs. 100 spent by a player, Rs. 28 will go towards GST (Goods and Services Tax), in addition to charges by the gaming platform and a 30% tax deduction on any winnings.
This tax increase will discourage players and is not in line with global standards, where taxes are usually levied on platform fees (the fee charged to the clients for using a site or its service) or commissions. The gaming industry is taken aback by this move, and it could lead to a funding shortage and reduced investor confidence.
How is Online Gaming different from Gambling?
Imagine a game where you spin a wheel. If you win a prize based purely on luck, like the wheel landing on a random spot, it's gambling. But if you win by using your skills, like solving puzzles or making strategic moves, it's online gaming.
So basically, games can be played on the basis of two things:
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Game of Chance
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Game of Skill
Now, let's address why online games are sometimes compared to gambling. In gambling, people wager money on uncertain events with the possibility of winning a prize. Online gaming, on the other hand, involves playing computer or interactive games for entertainment, such as PubG, Cricket Tambola, or Free Fire.
Which Laws govern the Gaming Industry?
As for the laws governing online gaming in India, there is currently no dedicated regulatory body. The Ministry of Electronics and Information Technology oversees the sector, and the Information Technology Act of 2000 governs online activities. The Gambling Act plays a significant role in regulating gambling activities, including certain forms of online gaming, with individual states having the authority to formulate their own laws.
Indian courts have been instrumental in influencing the legal framework for online gaming by interpreting the Gambling Act. Key judgments, like the State of Andhra Pradesh v. K. Satyanarayana and State of Bombay v. RMD Chamarbaugwala, have offered clarity on differentiating skill-based and chance-based games. These landmark decisions continue to shape subsequent legal and regulatory actions.
Who has the power to make laws for the Online Gaming industry?
The Ministry of Electronics and Information Technology (MeitY) has made new rules for online games involving real money, starting from April 6, 2023. In India, the power to make laws about games that rely on luck (games of chance) belongs to the 7th Schedule, Entry no. 34 List II (State List) of the Indian Constitution. However, games that require skill (games of skill) are protected by the constitution under Article 19 (1) (g).
What do the experts have to say?
Industry experts have expressed concerns about the impact of increased taxes. They believe it will hamper the industry's growth, deter foreign direct investment, and push users towards illegal betting platforms. This could lead to a loss of revenue for the government and jeopardize the viability of gaming companies.
Pros and Cons of the Increased tax
The new tax on online gaming, where users have to pay 28% on their total stakes, can harm the industry's growth and economic benefits. This heavy taxation may lead to fewer people playing games, which could threaten gaming companies and reduce tax revenues. The constant changes in GST for online gaming create confusion and discourage investment. Indian gaming companies aiming to expand internationally might face difficulties due to GST costs, unless there are clear rules for foreign users on Indian gaming platforms.
Way Ahead!!
The increased tax burden will impede the growth of the online gaming industry, resulting in declining gaming volumes and lower tax revenues. It may also discourage tech entrepreneurs from operating in India and hinder the competitiveness of Indian gaming companies in foreign markets.
The government always focuses on levying taxes on the addictive industry with a dual motive, i.e. to earn revenue and reduce consumption of those products (like cigarettes and alcohol). After Covid-19, the gaming industry has become one of the addictions among the youth. So now, the proposed tax changes will burden the gaming industry financially and hinder its growth. Finding a balanced approach that supports the industry's development while ensuring fair taxation is crucial.
FAQs (Frequently Asked Questions)
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How much tax has been imposed on the gaming industry as per the recent news?
Ans. A total of 28% tax has been imposed on the gaming industry as announced by Finance Minister Nirmala Sitharaman.
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What is Platform Fees?
Ans. Platform fees are the fees that are charged to the clients for using a site or its services.
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How will the GST affect the gaming industry?
The new GST rules will limit the ability of the individual to invest in new games by impacting their cash flows and business expansion.
What are your views on this news?