They say the change in methodology will result in wholesale destruction of the sector, including for many MSMEs and start-ups.
Investors in the country’s online skill gaming industry have written to Prime Minister Narendra Modi raising concerns over the decision to levy 28% goods and services tax on the full value of bets.
“The change in methodology to apply GST rates on ‘full value’ will result in wholesale destruction of the sector, including for many MSMEs and start-ups, which may no longer be able to sustain their business operations and will shut down with immediate effect,” they have said in the letter.
As many as 30 domestic and foreign investors including Kotak Private Equity, ChrysCapital, Tiger Global Management and Think Investments have written the letter.
A situation could arise where 50% to 70% of every rupee may go towards GST if “full value of bets” is understood in a manner where GST is levied on every contest played every time with fully taxed winnings.
In FY24, the online skill gaming industry is expected to contribute about Rs 4,500 crore in GST at the rate of 18% on the operators gaming revenue. If the tax rate was increased to 28% on the gaming revenue, it would have increased the GST revenue by 55% without adversely impacting the sector, they said. “This would also have ensured that the practice is in line with how GST or value added tax is levied on gaming across most international markets,” they further said.
The investors have sought a brief meeting with the Prime Ministers or officials in the PM’s Office to discuss their concerns about the impact of the recent GST Council decision.
“The current GST proposal will set up the most onerous tax regime for the gaming sector globally, which will lead to a potential write-off of the $ 2.5 billion capital invested in this sector. This will also adversely impact prospective investments to the tune of at least $ 4 billion in the next three to four years and hence the growth of the gaming sector in India,” they further said.
The GST Council in its meeting on June 11 decided to unanimously approve a 28% GST on the full face value on activities including online gaming, horse racing and casinos. While the industry has been concerned about the tax impact, officials have maintained that there will be no roll back of the decision.
The tax proposal would also lead to loss of over 50,000 highly skilled jobs and many companies may choose to move offshore to avoid the tax impact, the investors have further said. “The industry also spends roughly $ 1 billion in advertisements, which would be completely wiped off, leading to a cascading wider impact on the larger media and entertainment industry,” they said.
More importantly, the consumer base of close to 400 million Indian online gamers would be exposed to unsafe and unscrupulous platforms, they further contended.
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