Deloitte analysis warns of maximum tax threat to Indian online gaming industry

Proposed 28% GST on gaming volume could cripple operators and shift interest to illegal platforms

A recent analysis conducted by Deloitte and co-authored with the (FIFS) has raised concerns over the potential impact of a proposed maximum tax on the Indian online gaming industry. Released on the eve of a crucial Goods and Services Tax (GST) determination, the report cautions that imposing a 28 percent GST on gaming volume could result in industry “degrowth” and severely affect both large and small operators.

The report argues that implementing a 28 percent GST on volume, instead of the current 18 percent GST on gross revenue, may not only cripple domestic gaming operators but also divert consumer interest towards illegal foreign-based gaming platforms. The authors predict that such a tax scheme could lead to a staggering 43-fold reduction in industry revenue by the fifth year of its introduction when increased costs are passed on to customers.

Deloitte emphasises that the current revenue generated by online gaming operators falls short of the tax liability imposed by this proposed scheme, making it financially unfeasible for operators to even reach the break-even point. Consequently, the industry could become nonviable, causing both small and large players to exit the market. Moreover, this unfavorable scenario would gradually shift consumers to offshore or grey market online gaming industries, resulting in reduced revenue for the government exchequer.

The report underscores that the Indian online gaming industry is still in its nascent stage of growth and development. Imposing a higher tax rate could stifle the industry’s potential, hindering investments and job creation. Deloitte urges the government to adopt a thoughtful approach to taxation that considers industry dynamics, consumer affordability, substitutability, and competitiveness, ultimately fostering a sustainable and thriving gaming ecosystem.

The GST Council, chaired by the central government, is scheduled to convene on Tuesday, July 11, to make crucial decisions regarding various GST items, including those pertaining to all gaming segments. However, disagreements among the council’s state government delegates have caused delays in tax revisions for the gaming industry.

In a related context, a court ruling emphasised that online skill games cannot be categorised as gambling activities, challenging the central government’s ability to impose taxes on them using the same standards. Consequently, the court rejected the government’s claim for $2.6 billion in unpaid taxes from Gameskraft Technologies. The Deloitte report adds that the “applicability of GST” should differentiate between constitutionally protected online skill games and non-protected games of chance. It suggests that a careful and comprehensive approach to taxation, considering the unique characteristics of the gaming industry, is essential to maintain a sustainable and thriving gaming ecosystem.

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