In a significant development for investors in the online gaming sector, the Ministry of Finance has officially implemented the amended provisions under the Goods and Services Tax (GST) from October 1, 2023. Now, the industry will be subject to a 28 per cent GST based on the full face value of the bets placed.
This move has stirred discussions and concerns within the industry due to its potential impact on the burgeoning e-gaming market. Delta Corp, a company specialised in the gaming industry, saw its share price dip over 5.5 per cent since the announcement.
The retrospective provision of the law has now raised concerns among industry representatives and investors.
A panel of experts at the TIOL Tax Congress 2023 on October 5, 2023 addressed this issue and shared the hope that both the government and the e-gaming industry will work in tandem to resolve the issue.
The industry has expressed apprehension that this retrospective taxation could deter potential investors from the sector, thus impeding its growth.
Sharing the industry’s views on the recent GST law and tax notices sent to various e-gaming companies, Joy Bhattacharjee, director general of Federation of Indian Fantasy Sports (FIFS) – the industry body of fantasy sports companies in India said that the issue of GST rate is more or less settled. The only issue that the industry has is on the retrospective provision of the law, as it is discouraging investors from putting their money in this booming industry.
Bhattacharjee emphasised the industry’s commitment to the $5 trillion goal, while commending the government’s effort in governing the industry.
“However, retrospectivity of GST provisions is a very difficult blow for us. Having ‘contingent liability’ will spook away the investors whom we need during this growth phase. We hope the government will understand our point of view and settle the matter,” Bhattacharjee said.
He also suggested that the e-gaming industry need a TRAI-like body for seamless communication to the government and for resolving issues that may crop up due to the rapid pace in technological innovation in the industry.
Upender Gupta, chief commissioner of Central Goods and Services Tax (CGST) in Panchkula, asserted that online gaming is indeed taxable. He said: “The gaming industry was thinking that it is taxable by 18 per cent. So, some day it has to be settled and confusion has to be cleared.”
Following a destination-based tax approach, the tax burden ultimately falls on the customer, he added.
Retrospective taxation, however, presents a unique challenge as it is difficult to trace past transactions and collect taxes accordingly.
Anil Kumar Gupta, principal director general of the Directorate General of GST Intelligence (DGGI), stressed that the judiciary would settle the retrospective taxation issue.
He reassured that the government’s intention is not to discourage the growing industry and that the taxation framework would be reviewed after six months, “wherein depending on the scenario, the government will take a call.”
John Joseph, a former member of the Central Board of Indirect Taxes & Customs (CBIC), acknowledged the rapid pace of technological advancement in the industry. The taxation mechanism may not be able to cope with pace of technology based industries, he said.
He said that substantial investment is in the pipeline in the online gaming industry. “But the e-gaming industry should not killed as it is the ‘Golden Goose’ and the right approach is to tax it, but ensure that it doesn’t move out and seeks havens in other countries,” he added.
As the Indian e-gaming sector grapples with these tax changes, investors are closely monitoring the government’s response and hoping for a resolution that supports the industry’s growth while also adhering to the tax regulations.