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Indian authorities are set to decide on a new online gaming tax after a fierce backlash from companies and investors who warn it will kill the fast-growing multibillion-dollar industry for fantasy sports and other real-money games.
The country’s Goods and Services Tax Council, a federal body that sets India’s indirect taxes, meets on Wednesday to discuss the introduction of a 28 per cent levy on stakes in online gaming that would be more than 1,000 per cent higher than the current tax rate, according to industry estimates.
The new levy would mostly affect real-money games where users earn cash prizes in games like fantasy cricket or online rummy. The sector has been operating in a regulatory grey area and has attracted the interest of venture capitalists.
While gambling is mostly illegal in India, real-money games companies have won court cases deeming them to be “games of skill” as distinct from betting. However, their surge in popularity has alarmed authorities, who fear a rise in addiction.
Companies collect commissions on the stakes placed by consumers and under current practice pay 18 per cent tax on those commissions. Under the proposed change, the stake itself would be subject to a 28 per cent tax, as well as a commission, representing a huge disincentive for gamers.
Roland Landers, chief executive of industry group the All India Gaming Federation, predicts companies in the sector would suffer a big hit to their businesses: “The larger ones may scrape through, but the mid to smaller players would be finding it extremely difficult — in fact, they would be on the verge of shutting down,” he said.
Saumya Singh Rathore, co-founder of WinZo, which aggregates various real-money games, said the tax risked putting the platform out of business. “We are certain that 85 per cent of these games would stand unviable, making WinZo as a platform also unviable,” she said.
India’s gaming market has grown rapidly in recent years thanks to the spread of smartphones and low data prices. A report by Lumikai, a gaming-focused fund, estimated that the total size of the market was $2.6bn in the year ending in March 2022.
Real-money gaming companies take up most of the market. They include some of the country’s largest start-ups, such as the Indian cricket team’s shirt sponsor Dream11. Annual investment in online gaming rose from $2.3mn in 2013 to a peak of nearly $400mn in 2021, according to data provider Tracxn.
Finance minister Nirmala Sitharaman described the 28 per cent tax, which also applies to horseracing and casinos, only allowed in a handful of states, as a “moral” issue.
“Should the tax on casinos be less than the tax on food products?” she said at a GST Council meeting last month. “A moral question was discussed. We shouldn’t shut down the industry, but that doesn’t mean that we should give them more incentives than essential goods.” Some restaurants and food services are taxed at 18 per cent, the same rate as online gaming before the latest proposal.
A group of investors in the sector, including Tiger Global and Peak XV, Sequoia’s rebranded India business, wrote to Prime Minister Narendra Modi this month, asking for the government to reconsider the tax.
Recommendations from the council, which represents the central government and India’s states, are subsequently enacted into law.
Meyyappan Nagappan, a tax partner at law firm Trilegal who works with gaming companies, said the industry was hoping for some relief at Wednesday’s GST Council meeting.
“Everybody is in wait-and-watch mode and there’s still some hope,” Nagappan said.