EY, AIGF release ‘Online gaming in India – The GST conundrum’ report
EY in collaboration with the All India Gaming Federation releases the ‘Online gaming in India – The GST conundrum’ report. The report highlights global best practices for taxation and provides much-needed clarity on aspects related to valuation and applicable GST rates.
The report states that the Indian online gaming sector reached US$1.027 billion in 2020, a growth of ~17.3% from US$543 million in 2016. With its current trajectory, it is expected to reach US$2 billion by 2023 in terms of rake fees earned. While India is currently the fourth largest online gaming market globally, the industry requires a robust regulatory and legal environment to help the business scale quickly and achieve its true potential.
Online gamers in India are estimated to grow from 360 million in 2020 to 510 million in 2022. Additionally, there are over 400 gaming start-ups at present that are accelerating the growth of the sector. However, in India, the classification of whether a game comprises a ‘game of skill’ or a ‘game of chance’ has wide consequences for legal implications on business operations. A game of chance attracts a higher GST rate of tax vis-à-vis a game of skill. Online games operate either on the ‘rake fee’ model wherein the gaming platform charges a rake fee for facilitating games or ‘freemium’ models wherein the gameplay is free but additional features may require users to purchase specific items for a monetary price. A rational imposition of Goods and Services Tax (‘GST’) is therefore vital for sustaining this industry.
Bipin Sapra, Partner – Indirect Tax, EY India, shares, “The online gaming industry is growing at an impressive CAGR of over 20% and holds significant potential for economic growth, job creation, and contribution to the Government’s vision of a trillion-dollar digital economy by 2025. To enable the industry in realising its peak growth potential, it is imperative that the GST regime for the online gaming industry is kept rational and at par with other technology platforms. Adopting globally consistent standards in our tax treatment of the industry will enable it to achieve its true potential.”
Roland Landers, CEO, All India Gaming Federation, says, “The valuation disputes under GST law have been a dampener to the industry. Considering the market size and future growth projections, the online gaming industry is expected to be a significant contributor to the government’s vision and provide future economic avenues considering the ubiquitous digital trends impacting our lifestyle. It is important to highlight that regressive taxation of these emerging sectors may only make the business unsustainable in India. Our recommendation is that the Tax authorities should align its policies with internationally accepted principles of taxing the online gaming sector and provide certainty to the industry. We hope that this report would provide meaningful insights and help accord focus to this sunrise industry.”
To realize the full potential of the online gaming industry, a levy of standard GST/VAT rates is recommended, to be treated on par with any other segments of the economy.
Crystallizing the GST levy mechanism
The valuation mechanism in levying GST on the entire stake value vis-à-vis the rake fee element should be clearly outlined to avoid any ambiguities and potential litigations leading to tax demands. Any uncertainty and possibilities of litigation adversely impact the business plans, operations, and entry of new players in the industry. Most industry players have a rake fee in the range of 4% – 20%. Any attempt to levy GST on the entire stake value potentially leads to economic un-viability of the business model and could force the closure of businesses.
The report outlines three options:
- GST on rake fee value: Thissuggests a levy of GST only on the rake fee i.e. consideration received by the gaming platform. It is presently being followed across the industry and is in alignment with existing GST mechanism to levy tax on consideration only.
- Deemed credit model: This has only two data metrics to be considered – stake and pay-outs. This mechanism makes it easier for the Government to verify and audit entities. However, businesses would be required to undertake a change in their ERP systems to compute GST.
- GST on entire stake value but at a nominal rate of say 1.8%: Thisis simpler to calculate as it has only one data metric to be tracked by business i.e. stake value. However, the mechanism would be discriminatory for industry players having low rake since GST outflow would be high whereas margins are lower. This method is also prone to manipulation where ‘platform fee only’ players without any prize-winning model may offer nominal winnings to lower tax outflow.
Given the online gaming industry acts as a technology enabler and facilitates gameplays through a web platform similar to software companies’ products, the report recommends a GST rate of 18% to be levied to mitigate any risks of misclassification of the online gaming industry as betting or gambling. The tax rate should not exceed 20% as it could result in the gaming operators as well as consumers entering the grey market. Singapore, South Africa and Australia follow the deemed credit model mechanism making it easier to verify and audit the entities. The model is in line with judicial decisions and also takes care of anticipated risk around the misdeclaration of rake fees.
Read Also : DANGAL GAMES ROLLS OUT ITS UNIFIED GAMING APPLICATION
Disclaimer: Information mentioned here has not been verified or endorsed by The Gaming Reporter and is in accordance with the press release shared by the company or their appointed representatives.
Hello! I know this is somewhat off topic but I was wondering if you knew where I could locate a captcha
plugin for my comment form? I’m using the same blog platform as yours
and I’m having trouble finding one? Thanks a lot!
I really like your blog.. very nice colors & theme. Did you make this website yourself or did you hire someone to do it for you? Plz answer back as I’m looking to create my own blog and would like to find out where u got this from. kudos
466920 124372Howdy! Do you know if they make any plugins to safeguard against hackers? Im kinda paranoid about losing everything Ive worked hard on. Any suggestions? 328949
67202 594162Respect to author , some fantastic data . 269915
Howdy! I know this is kinda off topic however I’d figured
I’d ask. Would you be interested in trading links or maybe guest writing a blog post or vice-versa?
My website addresses a lot of the same subjects as yours and I feel we could greatly benefit
from each other. If you’re interested feel free to send me an email.
I look forward to hearing from you! Great blog by the way!
Hi to every body, it’s my first pay a quick visit of this
web site; this web site includes remarkable and actually fine data designed for readers.
I am regular visitor, how are you everybody? This article
posted at this web page is genuinely nice.
Why people still make use of to read news papers when in this technological world
everything is existing on web?
Hey there, I think your site might be having browser compatibility issues.
When I look at your website in Firefox, it looks fine but
when opening in Internet Explorer, it has some overlapping.
I just wanted to give you a quick heads up! Other then that, great blog!
Hi, I do believe this is a great blog. I stumbledupon it ;
) I’m going to revisit yet again since I book-marked it.
Money and freedom is the best way to change, may you be rich and continue to help others.
I know this if off topic but I’m looking into starting my own blog and was curious what all is required
to get setup? I’m assuming having a blog like yours would cost a pretty penny?
I’m not very web savvy so I’m not 100% sure. Any tips or advice would
be greatly appreciated. Kudos
It’s fantastic that you are getting thoughts from this paragraph as well as from our argument made
at this time.
452836 259828This web web site is really a walk-through for all with the information you wanted about this and didnt know who to ask. Glimpse here, and youll definitely discover it. 467710
Nice post! This is a very nice blog that I will definitely come back to more times this year! Thanks for the informative post. Anyway, I am here now and would just like to say thank you for a tremendous post and an all-around entertaining website. Please keep up the great work. internetgame.me
It’s very interesting! If you need help, look here: hitman agency
It’s very interesting! If you need help, look here: hitman agency
You are so awesome! I do not suppose I’ve truly read anything
like that before. So wonderful to find another person with original thoughts on this topic.
Really.. thanks for starting this up. This site is one thing that is needed on the
web, someone with some originality! ricardos.shop
447271 271416Normally I do not learn post on blogs, even so I would like to say that this write-up very pressured me to look at and do so! Your writing style has been surprised me. Thank you, quite great post. 850359
969027 529997Id forever want to be update on new posts on this site , bookmarked ! . 665357
If you wish for to grow your experience only keep visiting this site and be updated with
the most recent news update posted here. I saw similar
here: sklep internetowy and also here: najlepszy sklep
I really like your blog.. very nice colors & theme.
Did you create this website yourself or did you hire someone to do it for you?
Plz answer back as I’m looking to design my own blog and would like to find
out where u got this from. many thanks I saw similar
here: sklep online and also here:
dobry sklep
Good day! I know this is kind of off topic but I
was wondering if you knew where I could locate a
captcha plugin for my comment form? I’m using the same blog platform as
yours and I’m having trouble finding one? Thanks a lot!!
It’s very interesting! If you need help, look here: hitman agency
Hey I know this is off topic but I was wondering
if you knew of any widgets I could add to my blog that automatically tweet my newest twitter updates.
I’ve been looking for a plug-in like this for quite some time and was hoping maybe you would have
some experience with something like this. Please let me know if you
run into anything. I truly enjoy reading your blog and I look forward to your new updates.
I saw similar here: Ecommerce
I savor, cause I found just what I used to be taking a look
for. You have ended my 4 day lengthy hunt! God Bless you man. Have a great day.
Bye I saw similar here: Sklep internetowy
Hey there! Do you know if they make any plugins to help with SEO?
I’m trying to get my blog to rank for some targeted keywords but I’m not seeing very good gains.
If you know of any please share. Kudos! You can read similar text here: Sklep online
Hi there! Do you know if they make any plugins to help
with Search Engine Optimization? I’m trying to get
my blog to rank for some targeted keywords but I’m not seeing very good success.
If you know of any please share. Appreciate it!
You can read similar text here: Najlepszy sklep
795706 812752What host are you using? Can I get your associate link in your host? I want site loaded up as quickly as yours lol 969165