Online gaming companies, which have slammed the Goods and Services Tax (GST) Council’s decision to impose the maximum 28% indirect tax on the full face value of the business, said they are awaiting details on the applicability of the levy before deciding their next steps.
“Once the amendments are made to the GST law to include online gaming under the ambit… we would urge the government to issue a set of FAQs in the way they had put forth for tax collected at source (TCS) norms for cryptocurrencies,” said an executive at a unicorn gaming platform.
Gaming companies are learnt to be discussing the course of action and deciding on the key clarifications they need from the government before approaching the finance ministry.
These include queries such as whether the tax will be levied if a user enters a new contest with the winnings from a previous one.
“If the tax is only being applied on the first instance — on the money that the user enters the game with — then the impact may not be a death blow,” a top executive at a fantasy sports company said.
On Tuesday, the GST Council agreed to impose a 28% tax on online gaming at the full face value, shocking the industry.
Companies had been expecting the tax to be levied on the gross gaming revenue (GGR), the platform fee that they charge for facilitating the games.
Currently, online real-money gaming companies charge a platform fee in the range of 8- 15%, said one of the sources cited above.
Globally, jurisdictions have taken both routes — imposing tax on contest entry amounts and GGR.
For example, countries like the UK, Singapore, Australia, Denmark and Italy levy the tax on GGR. Countries such as Germany, Portugal and Poland charge tax on the full face value.
MeitY Rules
A tax consultant at one of the Big Four audit firms who works with a large online gaming firm told ET on the condition of anonymity that companies were also considering seeking clarity from the government on the applicability of the tax in line with the online gaming rules notified by the Ministry of Electronics and Information Technology (MeitY) earlier this year.
“Government officials have indicated that only the games that allow wagering will be charged at 28%… casual real-money games may not attract 28%,” he said. “The certification will be done by the self-regulators that the MeitY is expected to notify… the rules clearly state that any real-money game that allows wagering will not be allowed on the Indian internet. Therefore, if an online game is certified as permissible, what will be the tax rate applicable is something that remains to be seen.”
Revenue secretary Sanjay Malhotra told ET on Thursday that online games, when played without stakes, will continue to be taxed at 18%.
“The 28% tax is only when there is wagering on the outcome of a game — whether it’s a game of skill or chance is not important. It is wagering and that attracts a higher tax rate, as it should be,” Malhotra said.
Internal deliberations
Among the various aspects being discussed internally by the industry is the fate of smaller startups and gaming platforms. They say that while the larger firms will be able to survive the new tax regime, the smaller ones would be forced to shut, according to another industry executive, who was briefed on the discussions.
“A point of debate that has emerged between the companies pertains to whether they pass on the entire GST burden to the consumers or retain it partially,” the person said. “There is a split on this issue considering the bigger gaming platforms have a cushion of high profits that the smaller companies don’t enjoy.”
The difference of opinion has also emerged between fantasy sports companies and other real-money gaming companies, which offer card games such as poker and rummy.
“Fantasy sports companies have huge pots with hundreds, if not thousands, of players entering with a relatively smaller amount,” the person added. “So the GST impact would get spread out over a larger cohort… the impact would be more for games with fewer participants.”
Two of the largest companies in the segment — Dream11 and Gameskraft — have reported profits for the last two fiscal years in which they have declared earnings.
For the year ended March 31, 2022, Dream11 reported a 50% increase in operating revenue to Rs 3,840.75 crore, with a net profit of Rs 142.86 crore. Gameskraft reported a nearly 50% jump in operating revenue to Rs 2,112 crore, with a profit of Rs 937 crore, 28% higher from the preceding year.
Source from: https://economictimes.indiatimes.com/tech/technology/online-gaming-companies-seek-more-clarity-on-gst/articleshow/101766168.cms
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