GST On Full Bet Value Will Kill Online Gaming, Says Industry

The GST Council agreed to levy a 28% tax on the full value of bets for online gaming, casinos, and horse racing.

This will be imposed on the full face value of the bets placed, it said in its 50th meeting earlier on Tuesday.

"Unconstitutional", "self-goal", "may lead to extinction"—these are some of the words that the gaming industry used to refer to the move.

Here's what the gaming industry and legal experts said:

Roland Landers, chief executive officer at the All India Gaming Federation, called the decision "unconstitutional, irrational, and egregious" and said it ignored "over 60 years of settled legal jurisprudence and lumps online gaming with gambling activities".

Calling it "legally untenable", Landers said the central government, which has extended support to the industry by framing online gaming rules and providing clarity on TDS, has reached this conclusion while ignoring the view of the group of ministers of most states who thoroughly studied the matter.

While the 28% rate is detrimental to the online gaming industry, the chargeability on full value is what is going to hurt the gaming companies to such an extent that it "may lead to its extinction", Sudipta Bhattacharjee, partner at Khaitan & Co., said.

Bhattacharjee said the findings of the Karnataka High Court in Gameskraft with respect to the distinction between a game of skill and a game of chance have not been appreciated. "It will need to be seen if the prescribed methodology to tax online gaming will pass the test of constitutionality. In any case, this cannot be implemented retrospectively."

GST on gross gaming value is a "self-goal that will kill India's skilled online games industry", said Amrit Kiran Singh, chief strategy advisor to the founders of Gameskraft. It negates all the good work that the Modi government has done to support the skilled online gaming industry, he said.

Singh said this decision is not "in the national interest" and will "destroy a significant part" of the successful companies in India's startup ecosystem.

Over-taxation in India will only support the overseas gaming companies and encourage the Indian industry to migrate overseas, he said. Along with that, the rightful economic benefits will also migrate. "This is a self-goal that causes a body blow" to India's startup ecosystem, he said.

India's gaming industry has created over 2 lakh jobs, Singh said. Today, India only has 1% of the world's market share, with the potential to grow to 5% and 10% rapidly, according to him. The U.S. and China are the market leaders with 23% and 25%, respectively, he said.

This decision will have a chilling effect on the $2.5 billion (Rs 20,602 crore) of foreign direct investment already invested and jeopardise potentially any further FDI in the sector, according to Joy Bhattacharjya, director-general at Federation of Indian Fantasy Sports.

The change in valuation to tax on the total consideration will cause irreversible damage to the industry along with loss of revenue to the exchequer and loss of employment, he said.

Users will move towards illegal betting platforms and enhance user risk and lead to revenue loss for the government, Bhattacharjya said. "We humbly request the GST Council and the Government of India to reconsider this decision.”