Over 100 gaming startups and industry federations have come together to request the government to reconsider the GST Council’s decision to impose a 28% GST on the gaming sector’s full value. The signatories, including companies like Nazara Technologies, MPL, GamesKraft, and industry bodies like AIGF, EGF, and FIFS, sent a letter to various authorities, including the Prime Minister’s Office and the Ministry of Electronics and Information Technology.
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Concerns Over Distress and Impact on MSMEs
The letter expressed significant distress caused by the GST Council’s decision to categorize online skill gaming with betting and gambling, leading to the 28% GST levy. The industry believes this move could have devastating implications, particularly for micro, small, and medium enterprises (MSMEs) and startups, which may lack the capital reserves to handle such a substantial tax increase.
The signatories argued that the recommended GST burden would result in a 400%-500% increase. Which forced the industry to pass on the additional costs to users. This would impede industry growth and disproportionately affect the survival of numerous MSMEs and startups.
Impact on Employment and Black Market Operators
The gaming industry provides employment to approximately 100,000 individuals across various roles, including engineering, marketing, design, and research. It also supports content creators and game streamers, particularly in Tier II to V cities. The industry’s growth projections anticipate creating over 500,000 new jobs in the next five years.
The letter expressed concerns about the proposed GST hike increasing game costs. This may push users towards unregulated channels, benefiting black market operators. As a result, the government could suffer tax losses, and Indian gamers may access offshore gambling websites outside government control.
Proposal for Alternative Tax Structure
The gaming industry proposed that, if the GST on platform fees is increased to 28%, it should be based on the platform fee or gross gaming revenue earned by the industry. This approach would align with the taxation of other technology service platforms, where revenue generated is considered for GST purposes.
Government Officials’ Perspective and Industry Concerns
Government officials defended the GST Council’s decision, with Union Minister of State for Electronics and Information Technology Rajeev Chandrasekhar stating that it was a well-thought-out preliminary measure. Revenue Secretary Sanjay Malhotra emphasized the social and economic purpose of the move in the event of declining revenues.
The gaming market in India, estimated at $2.6 billion in FY22 and predicted to reach $8.6 billion by FY27. In 2022, gaming startups raised $349 million, an 80% drop compared to the $1.74 billion raised in 2021. While the sector showed signs of recovery in the first half of 2023. Andindustry stakeholders worry that the latest government decision could further deter investors from supporting the industry.
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