The online gaming industry in India is facing a major challenge after the GST Council decided to impose a 28% tax on the full face value of bets placed in online gaming, casinos, and horse racing. This decision has sparked a lot of criticism and controversy from the industry players, who claim that it will kill the booming sector and harm the end users.
In this article, we will explore how the 28% GST on online gaming, casinos, and horse racing will affect the end user in terms of cost, choice, and safety.
The 28% GST Will Increase the Cost of Online Gaming for the End User
One of the most obvious effects of the 28% GST on online gaming, casinos, and horse racing is that it will increase the cost of online gaming for the end user. Currently, online gaming platforms charge a platform fee or an entry fee (usually 10-20%) for participating in the game and pay an 18% GST on that fee. However, under the new regime, the entire amount collected from the players will be subject to a 28% GST. This means that for every Rs. 100 spent by a player, there will be a Rs. 28 tax component, in addition to the platform fee and any other charges.
Moreover, the end user will also have to pay income tax on any winnings from online betting, casinos, or horse racing. According to Rule 31A of the CGST Rules, 2018, a 30% tax deducted at source (TDS) is applicable on any winnings above Rs. 10,000. This means that if a player wins Rs. 50,000 from online gaming, he or she will have to pay Rs. 15,000 as TDS, apart from the GST and platform fee.
According to industry estimates, the total tax burden on online gaming winnings will go beyond 50%, including GST, platform fees, and income tax. This will reduce the net returns for the players and make online gaming less attractive and affordable for them.
The 28% GST Will Reduce the Choice of Online Gaming for the End User
Another effect of the 28% GST on online gaming, casinos, and horse racing is that it will reduce the choice of online gaming for the end user. The high tax rate will make it difficult for many online gaming platforms to survive and operate in India. According to some industry experts, many online gaming companies may choose to relocate their business outside India or shut down altogether. This will reduce the number and variety of online gaming options available for Indian players.
Furthermore, the 28% GST will also affect the quality and innovation of online gaming in India. The high tax rate will reduce the profitability and cash flow of online gaming platforms, which will hamper their ability to invest in research and development, technology upgradation, marketing, and customer service. This will affect their competitiveness and growth potential in the global market.
Additionally, the 28% GST will also create legal uncertainty and confusion for online gaming platforms and players. The GST Council has not clarified whether online gaming includes games of skill games of chance or both. This distinction is important because games of skill are considered legal in most states in India, while games of chance are prohibited or restricted under various laws. The lack of clarity may lead to disputes and litigation between different parties over the applicability and interpretation of GST on online gaming.
The 28% GST Will Compromise the Safety of Online Gaming for the End User
A third effect of the 28% GST on online gaming, casinos, and horse racing is that it will compromise the safety of online gaming for the end user. The high tax rate will drive away many legitimate and licensed online gaming platforms from India and create a vacuum that may be filled by illegal and unregulated operators. These operators may not have proper licenses, security measures, customer service, or fair gaming practices. They may also cheat players out of their winnings, refuse to pay out, use rigged software, or engage in fraud or money laundering activities.
The end user may not have any legal recourse or protection if they encounter any problems with these illegal operators. They may also face legal risks or penalties if they are caught playing on these platforms. Moreover, they may also expose themselves to cyber threats such as hacking, phishing, malware, or identity theft if they share their personal or financial information with these operators.
The 28% GST on online gaming, casinos, and horse racing will hurt the end user in terms of cost, choice, and safety. It will make online gaming more expensive, less attractive, and less safe for them. It will also hurt the online gaming industry in India and affect its growth potential and contribution to the economy. The GST Council should reconsider its decision and adopt a more rational and reasonable tax regime for online gaming that is in line with global standards and best practices.