Online Real Money Gaming (RMG) stakeholders reacted negatively to the idea of a potential 40% tax on such games under the new Goods and Services Tax (GST) regime, with the E-Gaming Federation stating that such a move would “fundamentally undermine” the sector.
For context, the Government of India is planning to implement changes within the GST structure, as Prime Minister Narendra Modi announced during the Independence Day address on August 15 from the Red Fort’s ramparts.
The new regime will reportedly discount the 12% and 28% slabs, leaving only the 5% and 18% levies. Media reports also state that the Government is considering a sin tax of 40% on alcohol, tobacco and possibly even online gaming.
“While the Government’s intent may be to regulate the space, equating online gaming with sin goods like tobacco and gutkha reflects a fundamental misunderstanding of the industry’s nature and value,” said Anuraag Saxena, the CEO of the E-Gaming Federation.
“What the sector needs is support for compliance, not a tax policy that stifles it entirely. Such a move risks mass closures, layoffs, and a sharp decline in investor confidence, all of which could set the Indian gaming economy back by years,” Saxena added.
Importantly, online RMG companies are currently taxed at 28% on the total value of bets placed on their platform, and not on the actual revenue collected by the platforms. Furthermore, RMG companies are also litigating in the Supreme Court (SC) over retrospective GST notices amounting to around Rs 2.5 lakh crore.
Why This Matters:
An industry analyst warned MediaNama that a 40% tax could wipe out the legal RMG industry in India and drive customers towards illegal offshore platforms. He explained that the Government was currently charging a 28% revenue on total user deposits on the platform, rather than the platform’s commission.
“Let’s say two players deposit Rs. 1,000 each into their wallets and then play a game, staking Rs. 100 each as a wager. The platform would charge maybe a 10% commission on the wagers, which would be Rs. 20 in total,” the analyst said. However, the Government was charging a 28% tax on the total deposit of Rs. 1,000, he said.
The analyst added that RMG companies weren’t transferring the GST cost to the users, but absorbing it themselves.
“The reason why companies are absorbing this loss is because there is a 10 times bigger illegal grey market running in India online in [the] betting and gambling [sectors],” he explained.
For context, if users lost Rs. 280 on every Rs. 1,000 deposit that they made, they would have no incentive to play on legal gaming platforms. Instead, they could easily visit any of the numerous illegal offshore platforms, that have no KYC requirements, pay no GST or have any TDS procedures.
The analyst warned that if the 40% tax rate comes into force, most companies will shut down and users will then flock to illegal…
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