By Sagar V. Mankar 
India is undergoing significant shifts in its tax policies, particularly within the online gaming sector. One of the most talked-about changes is the introduction of a 28% Goods and Services Tax (GST) rate on online gaming. This move has sparked debates among developers, players, and policymakers alike.
Implementation of GST on Online Gaming
Under GST rules, both the Indian Parliament and at least half of the states must approve the legislation for nationwide implementation. As of now, 18 out of 31 Indian states have successfully passed the necessary legislative changes to introduce a 28% GST rate on online gaming, horse racing, and casinos. According to Revenue Secretary Sanjay Malhotra, the remaining 13 states have also agreed to adopt these changes, which are set to take effect on October 1.
This taxation reform aims to streamline revenue collection and bring consistency to the tax treatment of various entertainment sectors across the country.
Concerns Raised by Stakeholders
The new tax policy has faced criticism from industry stakeholders and opposition leaders. During the 52nd GST Council meeting, Delhi State Finance Minister Atishi voiced concerns over the high tax rate. She argued that imposing such a significant levy could have a detrimental impact on the online gaming industry, which is still in its growth phase.
#WATCH | Delhi minister Atishi says “…Online gaming is that sector where over 50,000 people are employed. Online gaming is considered a sunrise sector in the startup sector, but the GST council recently took a decision and imposed 28% GST on online gaming. It will have a huge… pic.twitter.com/EVriKC5mGq
— ANI (@ANI) October 7, 2023
Industry experts share similar concerns, emphasizing that steep taxation could stifle innovation and hinder the sector’s development. Many believe that such policies could make it challenging for gaming platforms to sustain their operations and attract investments.
#Exclusive: “The industry in any case is paying 28% tax already,” claims entrepreneur & investor Ashneer Grover (@Ashneer_Grover) while expressing disappointment over 28% tax on online gaming #GSTCouncilMeeting #onlinegaming #TheRightStand pic.twitter.com/nnHwC7FJLs
— News18 (@CNNnews18) July 12, 2023
Government’s Response
Finance Minister Nirmala Sitharaman acknowledged these concerns and assured that the government would address the issues raised. However, she clarified that the central government had not issued any tax notices amounting to ₹1.5 trillion to online gaming companies, as claimed by Atishi. Instead, the Directorate General of GST Intelligence (DGGI), an independent body, was responsible for these notices.
Finance minister explanation of why 28% GST on casinos, online gaming and races was applied after due deliberation within GST council.
“Rates on gaming can’t be less than on food items” pic.twitter.com/PZPWRHDsfC
— Amit Kumar Gupta (@amitgupta0310) July 11, 2023
Despite these clarifications, gaming companies argue that the 28% tax rate could undermine their viability, especially in a sector that is being recognized as a “sunrise industry” alongside artificial intelligence, machine learning, and electric vehicles.
Balancing Taxation and Growth
While taxation is vital for revenue generation, it is equally important to foster innovation and support emerging industries. Online gaming, unlike horse racing and casinos, is not traditionally categorized as a betting activity. Instead, it represents a rapidly growing sector with significant potential to contribute to the economy.
The concerns raised by various stakeholders highlight the need for a balanced approach in tax reforms. Policymakers must ensure that while revenue is collected efficiently, the growth and sustainability of promising sectors like online gaming are not compromised.
As the new tax regime takes effect on October 1, all eyes will be on how the online gaming industry adapts to this significant change. The coming months will reveal whether this policy will drive the sector towards greater compliance or pose challenges to its growth trajectory.