Online gaming industry in India seeks clarity on taxation - Business2Business

New Delhi: The online gaming industry is expected to grow at a compound annual growth rate (CAGR) of 22% to $ 2 billion by 2023, up from $ 906 million in 2019, according to a report by All India Gaming Federation (AIGF) and EY India. Largely driven by a young and tech-savvy population, wide internet coverage, better performing affordable smartphones, India is now the world's fifth largest online gaming market and is expected to grow further after the digitization induced by covid-19.

Online games are also the fourth largest sub-segment in media and entertainment industry. The report stated that online gamers are expected to grow from 360 million in 2020 to 510 million in 2022. While online real money game players are expected to grow from 80 million in 2020 to 150 million in 2023.

The findings revealed that by creating more than 11,000 jobs, the e-sports sector is estimated to generate around $ 100 billion in economic value for India between 2021 and 2025, including investments, in-app purchases and winnings.

Looking at the growth prospects of the industry, the report also looks at the effects of GST and obstacles that can affect the business operations of the industry. He said that the tax rate should not exceed 20% as this could lead to gaming operators and consumers not joining the government licensing system and entering the gray market.

Online games operate on a 'fee' model where the gaming platform charges a rake fee to facilitate play or 'freemium' models where gameplay is free, but additional features may require the user to purchase certain items from a spot price. The report said that the rational imposition of the GST is important for the sustainability of the industry.

The vast majority of countries tax the online gaming industry at or below standard GST / VAT rates. The most common mode of taxation is based on rake commissions (platform fees) earned by industry players in markets such as the US, UK, and EU countries (except France). In some countries (eg South Africa, Singapore, Australia), a credit model is followed in which the entire value of the bet (bets) is taxed at an estimated discount allowed on payments (winnings) made to players.

"Valuation disputes under the GST Act have been dampener for the industry. Importantly, regressive taxes for these emerging sectors can make companies unsustainable in India. Our recommendation is that tax authorities should align their policies with internationally accepted principles of taxing the industry Online games bring certainty to the industry. "

The report highlighted the much-discussed issue of the legality of online gaming in India and stated that various higher courts across the country have held that Rummy, Poker and Fantasy Sports games are games of skill and do not amount to gambling or games of chance. E-sports must also qualify as a game of skill by applying the principles established by the courts.

EY Partner Bipin Sapra said: “The government needs to unambiguously state and clarify that games of skill such as rummy, fantasy sports, poker, etc., which are different from games of chance such as lotteries, betting and games randomly, they will be taxable at the GST rate. And the normal 18% services and the taxable value will be the platform fee or commission fee. A clarification to this effect would give certainty to the industry and would promote greater investment in this sector. "

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