2023-07-14 04:29:30
The Government of India has announced the imposition of a 28% tax on the revenue that online video game companies earn from their customers, in what poses a challenge for an industry valued at US$1.5 billion.
This decision is taken against a background of growing concern about potential addiction problems and financial losses for players, even as the sector remains attractive to investors.
Online gaming platforms, often backed by iconic figures from Indian sports, especially cricket, a national passion, have seen rising concerns about potential risks associated with gambling.
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Despite these concerns, the industry has been growing at a compound annual rate of 28-30% and has attracted the attention of international investors. An example of this is the US investment firm Tiger Global, which has backed Dream11, an Indian gaming company and main sponsor of the Indian national cricket team.
Nirmala Sitharaman, India’s finance minister who chairs the Goods and Services Fiscal Council, which includes state finance ministers, announced on Tuesday that the decision to tax online gaming was taken after extensive discussions.
Industry leaders have responded, warning that they may have to pass the extra costs on to their customers by raising the prices of the games. Aaditya Shah, COO of gaming app IndiaPlays, said: “The implementation of a 28% tax rate will present significant challenges for the gaming industry. This increase in tax burden will affect the cash flows of companies.” Roland Landers, chief executive of The All India Gaming Federation, called the decision “unconstitutional and irrational”.
Kishore Kumar, head of indirect tax at Taxmann, argued that the proposal “will equate game of skill with betting contracts, which are in the nature of gambling and betting.”
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On the fantasy cricket gaming platform Dream11, users can create their teams by paying as little as 8 rupees (about 10 US cents), with a total prize pool of up to 1.2 million rupees (approximately US$14,565).
Until now, companies had to pay a minor tax on the fees they charged for offering real money games. However, the change announced on Tuesday means that a 28% tax will be imposed on the total amount collected from players in each game.
Redseer Consulting’s analysis reveals that revenue from fantasy gaming platforms during popular Indian Premier League cricket matches increased this season, which concluded on May 29, by 24% over last year, reaching more than of US$342 million, with more than 61 million participating users.
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