In a significant development, the Indian government is set to impose a new 28% tax on the iGaming industry, with the commencement date slated for October 1. The announcement of this tax, made by the Goods and Services Tax (GST) Council back in July, has ignited strong reactions from various stakeholders.
Industry Appeals for Reconsideration
Over 100 gaming companies and investors, including prominent names like Tiger Global and Peak XV, have called on the government to reconsider its decision. They argue that the 28% tax poses an “existential threat” to the industry.
Review Window Remains Open
In a move to address concerns, the GST Council, in August, indicated a willingness to review the tax six months after its implementation. However, it affirmed its decision to implement the tax.
Valuation Rules Clarified
The Council has also provided clarity on the valuation rules for this tax. It states that online gaming activities, including online casinos in India and horse racing, will be taxed based on the full-face value of the wagers placed.
Finance Minister Nirmala Sitharaman emphasized that the intention behind this tax is not to harm the industry but to eliminate any distinctions between games of skill and games of chance. The iGaming sector in India is currently valued at approximately $1.5 billion and is recognized as one of the fastest-growing consumer internet businesses in the country.
Government’s Mandate and Impact on Offshore Operators
Leading up to the October implementation, the Indian government has mandated that offshore online gaming companies operating in the country must register their businesses locally. Additionally, they have the option to appoint a representative responsible for paying taxes on customer funds.
The GST Council has issued a warning that overseas online gaming companies operating in India could face blockage if they fail to comply with these regulations. This approach aims to ensure that offshore companies are not given any tax advantages and are treated equally with their domestic counterparts, as explained by Rajat Mohan, a partner at AMRG & Associates.
Industry Response and Job Market Implications
The impact of this tax is already being felt in the industry. Mobile Premier League, an Indian gaming app, recently announced plans to lay off 350 employees as it seeks to navigate the challenges posed by the government’s tax policy.
Moreover, job postings in the online gaming sector have seen a significant decline, with staffing firms and job portals reporting drops ranging from 25% to 60%. This trend, observed in both large and startup companies, could signal that industry players are exploring new strategies in response to the impending tax.
Despite the criticism, the government defends the tax, citing that companies in the iGaming sector have paid minimal taxes on the fees they charge for providing real money games.