Online gaming industry fears lakhs of job cuts after GST hike

The Goods and Service Tax Council's decision to levy a 28% tax on online gaming will potentially wipe out the entire Indian gaming industry and lead to lakhs of job losses, industry experts said on Wednesday.

"We believe this decision by the GST Council ignores over 60 years of settled legal jurisprudence by lumping online skill gaming with gambling activities," says Roland Landers, CEO of the All India Gaming Federation.

The only winners in this decision will prove to be "illegal" and "anti-national" offshore-based gambling and betting platforms that have been providing services illegally in India, Landers says, adding that at this valuation of taxation, "companies will be paying more in taxes than they will be generating in revenue."

Landers hopes that the government will reconsider this recommendation of the GST Council, saying it will be "catastrophic" for the $1 trillion digit economy dream of Prime Minister Narendra Modi.

"We sincerely hope there will be a rethink and a stable and progressive regime is brought, which will help the industry grow, and provide safe platforms to digital nagriks, all the while increasing the tax revenues," Landers says.

Pratik Jain, partner, Price Waterhouse & Co LLP, says the decision to levy 28% on gross value in case of online gaming and casinos is perhaps not what the industry was hoping for. While it has been indicated that this proposal is clarificatory in nature, it would have been better to make it prospective to put the past dispute to rest, says Jain.

According to Abhishek Malhotra, managing partner, TMT Law Practice, this move has come as quite a shock for the industry, however, it remains to be seen as to how and on what basis, this policy shift is to be incorporated in the law.

"This will require an amendment to the GST Act, which amendment, shall have to be tested on the touchstone of the Constitution. It's to be seen whether it would survive a constitutional challenge, especially since the Supreme Court and at least two high courts have provided a distinct classification between games of skill and chance. To bundle everything under one head, is harsh and unsustainable," says Malhotra.

According to L. Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys, this is an unexpected development for the industry in light of the positive steps in TDS and the self-regulatory regime.

"After taxing 100% of the winning amount under new TDS regime, to tax full value of entry fee will have a significant impact on prize pool and incentive for players. The differential treatment for games of chance like casino and games of skill played in online gaming is arbitrary and will face legal challenges. This decision will have an adverse impact on the nascent sector and future investments," says Narayanan.

"This will aid in the further development of grey market operators and dark web affecting customer interest. The approach of the GST Council is a deviation from internationally accepted taxation practice," he adds.