The online gaming industry in India is facing a major setback with the Union Budget 2023-24. The government has decided to keep the Goods and Services Tax (GST) rate at a high 28%, despite industry demands for a fairer 18% rate. This decision has left industry leaders disappointed and concerned about the future growth of the sector.
The online gaming industry is currently valued at $2.2 billion and is projected to reach $5 billion by 2025. However, experts warn that the high 28% GST rate could severely hinder this growth. Industry leaders argue that the tax rate is regressive and stifles innovation. They are urging the government to differentiate skill gaming from gambling when it comes to taxation.
The industry is hopeful that the government will introduce a differential GST structure aligned with global rates of 10-15%. This would help nurture the online gaming ecosystem. However, the budget reflects a reluctance to support the sector's advancement. Industry bodies and major gaming firms are calling for regulations that protect users and differentiate skill gaming from gambling, rather than imposing blanket high taxes.
Previously, different gaming services were taxed at varying rates. Lottery, betting, gambling, and other gaming services faced a 28% GST, while online fantasy sports and skill gaming platforms were taxed at lower state-set rates or given exemptions in many states. The new uniform 28% GST now includes all such activities and platforms.
Many argue that there are clear distinctions between different gaming services. Fantasy sports involve user analysis and judgment, while casino games, poker, and horse betting rely more on chance. Skill gaming associations have made this case, but the government has not been swayed.
Another major concern is the affordability of paid online games and services for consumers. The effective tax on local users previously ranged from 18-25% across different platforms and contests. With the new 28% GST, there are fears of reduced user participation.
The online gaming sector in India is projected to reach $3.9 billion by FY25, making it a lucrative market for both domestic and international players. However, the industry is anxiously awaiting policy stability and a regulatory framework to drive the next stage of growth and innovation. The government's willingness to recalibrate its taxing strategies and introduce differential GST rates will play a crucial role in the sector's future.
While the outlook may seem bleak, the online gaming industry hopes that the government will reconsider the high GST rate and introduce differential rates to boost innovation and growth. The introduction of a regulatory framework is also essential for the long-term sustainability of the sector. Companies in the industry are now preparing for the impact of the high GST rate and working to mitigate risks while retaining user growth. Only time will tell if the government will take the necessary steps to enable the sector to thrive.
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