Courtesy-www.financialexpress.com
The 50th GST Council meeting announced a 28% GST levied on full value for online gaming companies. While the announcement faced backlash from gaming companies and players alike, the meeting on August 2 would likely clarify how the tax will be levied on online gaming. The meeting that is being held via video conferencing might also decide on the legal amendments. In this interview with BrandWagon Online, John Joseph, strategic adviser, DeepStrat and former chairman and member (Policy), CBIC, talks about the taxation of the online gaming space and shares his opinion on how it is going to affect the space. (Edited Excerpts)
The GST council’s decision in its 50th meeting to levy 28% GST on “full value” for online gaming companies has been met with a lot of uproar from the industry. Even investors have shared their concerns with the Prime Minister’s office. How do you view this development?
The online gaming industry for more than two years has been engaging with the government to consider the Goods and Service Tax (GST) levy on gross gaming revenue (GGR) as the international best practice. The 50th GST council however decided to hike the GST rate from 18% to 28% and change the valuation from GGR to “full value”.
As far as the hike in the rate is concerned, I do not see it as a huge issue. Many industries in India, including entertainment, pay GST at this rate. The change in value however is concerning. The GST, if levied on every game will be a huge blow to the industry – especially given the issue of repeat taxation that has been flagged by the industry. Taxing the prize pool every time a user redeploys the money will make playing games prohibitive for the players, hiking the effective rate of taxation to more than 50%. This will mean that online gaming will be given less favourable treatment compared to casinos, where online gaming operators will be liable to pay GST at least two times more in comparison to casino operators.
The revenue secretary has clearly said that GST on GGR is not something that they are even considering. With that, what do you think could be a solution?
I think the GST Council should at least consider bringing online gaming at par with casinos. Like in the case of casinos, they should consider levying a one-time tax on the deposits, which is to be appropriated for all subsequent bets without any further tax on winnings that are utilised to play new games within the platform before any withdrawal. It will soften the blow for the industry significantly. The value erosion and loss of livelihood will still be significant but the industry will still have an opportunity to adapt and survive. I think the government has taken cognizance of the industry’s concerns and it is hoped that they will work to allay those concerns.
A lot of gaming companies have raised the concern that even if they are taxed on deposits their businesses will cease to exist. What is your opinion on this?
In my opinion, GST on deposits, though not the ideal solution, will not be the death knell that the industry is worrying that it will be. All the gaming companies have large and small-scale contests. With GST on deposits, the large-scale format will take over, making the smaller contests unviable. I am sure that the government understands this and is cognizant that with a little restructuring, it is expected that the industry may still be able to survive and in the long term maybe even thrive but the actual impact remains to be seen.
The revenue secretary has said that the exchequer would get an estimated additional revenue between Rs 17,000 crore to Rs. 20,000 crore, annually following the GST Council’s decision to levy a 28% tax on the “full value of the bet” on online gaming. In your opinion do you think this will hold in the long run?
There is no way to say for sure that this will hold going ahead if the proposed tax is levied. An increase in the tax rate in an ideal scenario does mean that more volume would be collected ostensibly. But this only holds if the total number of consumers remains the same and the revenue of the industry remains the same with the growth rate staying constant, which is not likely at all. The council needs to consider the concept of the ‘laffer curve’. The basic principle is that there is a point at which an increase in tax rates results in a decrease in tax revenue, due to the negative economic effects of high tax rates such as decreased incentives to work and invest.
In this particular case, the 28% GST, if levied on every game, will make playing games so prohibitive that a lot of users will move to offshore platforms. In fact, according to a recent Deloitte report, GST if levied on every game will reduce the government’s revenue from the industry by as much as 70% over the next five years. At the same time, a more rational and sustainable regime may result in a long-term sustained increment in the exchequer’s revenue.
