Experts are warning that the Indian government's choice to assign a 28% tax on online gaming could be a "fatal blow" to the thriving industry and could spell its demise.
The prices of stocks of Indian digital gaming websites and gambling dens have plummeted after the GST Council's determination.
Gaming start-ups in the country were previously charged a minimal tax on the fees they charged for providing games. However, with the introduction of a GST rate of 28% being imposed on the entire value of a gaming transaction, the total amount collected from players will now be subject to taxation.
Industry estimates suggest that when the new law is in force, total taxation of player winnings will exceed 50%, comprising GST, platform fees and income taxes.
Effectively, a player will be charged an extra $28 in GST for every $100 (£76.8) spent, and their gaming platform may also take a $5-15 fee. Moreover, 30% of any winnings will be taken off as TDS.
Sudipta Bhattacharjee, partner at corporate law firm Khaitan & Co., declared that such an action will be "disincentivising to players and completely incompatible with global standards" since VAT or GST is normally taxed at a median rate and only on platform fees or commissions.
Mr Bhattacharjee stated that the transition was totally unexpected and would result in a decrease in confidence from investors causing a funding recession.
Over the past five years, India's online gaming industry has experienced a tremendous surge in growth with an annual compounded rate of 28-30%. Factors such as the availability of inexpensive smart phones and inexpensive mobile data have been contributory factors in the sector attracting over $2.5bn in foreign direct investment, including from investors like Tiger Global.
The GST council's decision is predicted to query the previous growth rates due to its expected consequences on numerous levels for startups, which includes the number of users, income, and investor confidence, as noted by Soham Thacker, the Founder & CEO of GamerJi - a gaming competition business.
Mr Thacker noted that, to mitigate the influence on shareholders, various gaming organizations could opt to move their operations abroad.
Gaurav Gaggar, Promoter of Poker High, a poker site, expressed that a single conclusion had annihilated the multibillion-dollar industry, and concurrently had the potential to provide an immense encouragement to illegal and illegitimate providers in the nation.
The All India Gaming Federation labeled the choice "illegal, unreasonable, and outrageous", noting that the government had gone against more than 60 years of "settled legal jurisprudence" by lumping online skill gaming with betting activities.
In many Indian states, gambling is deemed unlawful and is viewed unfavorably. Nevertheless, many states have approved virtual games that are regarded as a game of expertise.
Hundreds of thousands of job losses in the online gaming sector are anticipated by the industry body due to the newest action.
At present, gaming startups located in India provide work for 50,000 people and were projected to generate an additional 3,50,000 primary and 10,00,000 secondary jobs by the year 2028.
The BBC reported that numerous gaming firms they had contacted declared there was an absence of uniformity in regards to the decision.
Roland Landers, CEO of the All India Gaming Federation, expressed his regret in a statement that the government has been providing aid to the industry, yet a decision made with no legal standing has been taken. He warned that it could be disastrous for Prime Minister Narendra Modi's ambition to have a $1tn digital economy.
On multiple occasions, Prime Minister of India, Narendra Modi, has shown great admiration for the gaming industry as it has the ability to provide jobs and reach out to the international market.
Mr Bhattacharjee commented that this kind of extortionate tax system contradicts the measures taken and that multi-level support is needed to withdraw this idea.
He anticipates that the gaming industry will join forces and take legal action if the proposed modifications are implemented in federal and state tax regulations.
The revenue secretary of India stated that the decision had been made unanimously and would not be subject to reversal.
On Tuesday evening, Finance Minister Nirmala Sitharaman declared that the GST council, consisting of state and federal finance ministers, stated that none of them were willing to put an end to this industry.
"She warned against too much encouragement when it comes to essential goods and services,"
Siddhartha Iyer, a Supreme Court lawyer who has long endeavored to prohibit web-based gaming, described the 28% tax as a "move in the right direction" to the BBC.
Mr Iyer referred to gaming as a "speculative activity".
He noted that every week there are reports of someone committing suicide due to debts accrued through internet gaming.
Mr Iyer told that under the GST system, government's outlook that these games are wagering is accurate from his point of view. Such is his thought because people put a stake on something which they cannot manage. Just like alcohol and cigarettes are taxed to discourage people from having them, he believes that the same approach should be applied to the online gaming too.
Faisal Maqbool, who in the year 2022 was an ex-gaming addict and had wasted almost 400,000 rupees ($5,000, £3,750) while playing an online card game, believes that more rigid measures are required.
Mr Maqbool declared to the BBC that this was an addiction that had impacted children and young adults, and that to address this issue, the government should impose limitations based on age and income, and even go as far as an overall prohibition on these activities.
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