Online gaming firms likely to be left in the lurch at GST Council meet; ease of doing business makes it to the agenda

New Delhi: Online gaming companies hoping for relief from the GST Council on retrospective taxes adding up to ₹1.12 trillion may have to wait longer. The federal indirect tax body is unlikely to consider the industry’s plea during its meeting on Saturday, according to two officials informed about the council’s plans.

Companies with games involving real money have been treading a tightrope after authorities last year issued 71 notices for evasion of good and services tax for the period prior to 1 October, when a 28% GST rate was specifically prescribed on the full value of deposits made by players.

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Before that, the law did not specify tax rates on online gaming, and companies used to pay 18% tax on the platform fee or commission, typically 5-20% of the deposits.

While the Centre has approached the Supreme Court challenging a favourable order secured by the industry from a lower court, the GST Council was expected to consider the impact of the tax demand on the industry’s viability.

“We are confident that our urgent plea will be heeded and addressed,” said Saumya Singh Rathore, co-founder of online gaming platform WinZO.

That’s unlikely, however, at Saturday's meeting, according to the two officials mentioned earlier. They declined to be identified.

The Council will discuss amendments to GST laws that the central government can include in the Finance Bill to be presented next month and steps to improve the ease of doing business, these officials said.

The GST Council meeting as well as the Union government’s budget consultations with state finance ministers are scheduled for Saturday.

The finance ministry and the GST Council did not reply to emails sent on Sunday seeking comments.

Saturday’s agenda

The meetings on Saturday will give the Union government an opportunity to sense the mood among the states and their expectations from the National Democratic Alliance’s third term in office, said one of the two officials mentioned above. 

The government will be looking to signal that reforms and measures to improve ease of doing business will continue, this official said. While the government might decide on some changes to tax rates at the meetings on Saturday, no large-scale rate rationalisation is on the cards, said the official.

“Businesses would expect that the next phase of GST reforms, which would entail reduction in the number of rate slabs and the gradual inclusion of petroleum products, along with changes to improve ease of doing business, are kicked off in the GST Council meeting scheduled on 22 June,” said M.S. Mani, partner at Deloitte India.

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The second official mentioned earlier said the tax body may consider reducing the upfront fee to be deposited for filing appeals to the GST Appellate Tribunal—from 10% of the disputed tax amount to about 7%. 

Further fool-proofing of the GST registration process to prevent tax evasion and tax credit-related wrongdoings may also be discussed at the GST Council meeting, said this official.

Another GST Council meeting is expected to be held in August after the Union Budget is presented in July. 

A scenario of unprecedented challenges

As for online gaming, experts said policymakers need to lay down a regulatory landscape keeping in mind the macroeconomic impact.

India has about 425 million online gamers, the second-largest globally after China. Mint reported in December citing an EY report that the real-money gaming segment’s share of the overall online gaming market was expected to drop to 75.4% by 2027-28  from 83% in 2022-23 as a consequence of the retrospective tax demand. 

The overall online gaming market’s rise would slow to a compound annual growth rate of 15% till FY28 after growing at a 28% CAGR from FY20 to FY23, to ₹16,428 crore, according to the EY report. The real-money gaming segment in India counted more than 400 startups, according to the report.

“The retrospective demands for GST have decreased investor confidence, ease of business, and the flow of (foreign direct investment) into the country,” said John Joseph, former chairman and member (policy) of the Central Board of Indirect Taxes and Customs (CBIC), and a strategic adviser at DeepStrat, a risk management consultancy. 

“While the industry is complying with the prospective 28% GST demand, there is a need to clear the air on the Directorate General of GST Intelligence (DGGI) notices,” he said.

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Gaming industry representatives said the increased tax burden is taking a toll on the sector. 

“The gaming industry is facing unprecedented challenges. Companies are struggling to retain gamers, leading to widespread consolidation and pushing startups out of the ecosystem,” said Rathore of WinZO. “Many startups have already shut down, laid off hundreds of employees, and are grappling with stagnant revenues.”