India’s New Gaming Tax Plan Demands $12B From Online Operators

Posted on: October 26, 2023, 07:39h. 

Last updated on: October 26, 2023, 12:20h.

India recently decided that 28% is a fair tax that all online gaming operators targeting the country should pay. Now, the country believes it can force operators to hand over INR1 trillion (US$12.03 billion) to cover the taxes they didn’t pay for years.

A street in India crowded with people
A street in India crowded with people. The country’s new 28% GST tax on online gaming has the government demanding $12B from operators. (Image: Getty Images)

Reuters reported on the incredible amount Wednesday, with state officials arguing that the operators must pay up if they don’t want to be blackballed. This despite the fact that the 28% tax rate was never in place until just two months ago.

There’s no word yet from the various online gaming operators that service India on what their plans are. However, given that several have already jumped ship and exited the country, a mass exodus is likely.

Don’t Count On It

The goods and service tax (GST) rate will be the same for all operators, irrespective of the classification of activities as games based on skill or luck. Internet gaming falls under the purview of the revised Central Law on Goods and Services, encompassing a wide range of online games along with online gambling activities. The latter pertains to games where individuals place monetary or virtual bets with the objective of acquiring more money or virtual assets.

Amendments have been made to the Integrated Goods and Services Act, mandating that offshore providers engaging in online gambling must charge a GST to all of their users in India. It’s essential for online gambling corporations to thoroughly assess their tax circumstances and modify their Enterprise Resource Planning (ERP) system and tax calculation system to conform to the updated GST regulations.

If the government got excited when it saw the potential windfall it would receive, it would be best not to start dreaming about how to spend the money. Data provided by Statista this past June indicates that India’s online gaming industry was worth around INR135 billion (US$1.62 billion) last year.

Regardless of how India tries to justify the amount it wants operators to pay, the revenue isn’t there to back it up. It would be easier and cheaper for operators to exit the market than try to satisfy the demand.

Unreasonable and Wild

Gaming companies, which will soon only be able to offer certain gaming options, assert that they have contributed 18% GST toward the platform fees acquired from each game. However, the government posits that these fees merely constitute a minuscule fraction of the overall revenue, which, according to government officials, truly reflects the actual income earned.

Consequently, the GST Council has implemented substantial modifications in the regulations concerning the taxation procedures of online games. All online gaming activities, irrespective of categorization as games of skill or chance, will now be subject to a flat GST rate of 28% under the new system.

In contrast, the prior system had varying GST rates depending on the specific type of online game being played. Games that require a certain level of expertise from the player, like rummy or fantasy games, were subject to a moderate GST rate of 18%. Conversely, games that rely solely on fortune and chance, like gambling and sports betting, faced the higher GST rate of 28%.

Going forward, the most likely outcome is that India won’t see even a tiny fraction of the GST. The odds are better that many operators will circumvent the regulated, taxable market.