Global and Indian investors, including Tiger Global, DST Global, Peak XV, Steadview Capital, and Kotak Private Equity, have urged the Indian government to reconsider India’s newly announced taxation on online gaming.
The investors argue that the onerous tax regime will lead to a write-off of $2.5 billion and could result in the loss of one million direct and indirect jobs.
The Goods and Service Tax Council, consisting of federal and state finance ministers, recently decided to impose a 28% tax on the full face value of online gaming at entry points. However, the investors believe this decision equates the legitimate online skill gaming industry with gambling and other games of chance, which could have unintended consequences.
In a letter addressed to Prime Minister Modi, the group of 30 investors emphasised their vision of making India the gaming capital of the world, generating high-skilled jobs, attracting foreign capital, and positioning the country as a net exporter of gaming innovation and allied technologies like animation, artificial intelligence, and visual effects.
Online gaming is a rapidly growing consumer internet sector in India, with fantasy sports startups, such as Dream Sports and Mobile Premier League, raising significant funding. Dream11, a leading fantasy sports startup, projected an 80% drop in its EBITDA following the new tax rule, reported TechCrunch.
The investors highlighted the adverse impact of the proposed GST on the gaming sector, potentially leading to a write-off of the $2.5 billion invested and affecting prospective investments of around $4 billion in the next few years.
The letter outlined specific aspects that need examination before implementing the new taxation rule:
- Clarifying the understanding of “full value of bets” to avoid an excessive GST burden that could make the online real money skill gaming business model unviable.
- Determining whether GST should be levied on the full deposit value made by users or only on the winnings redeployed to play games, to prevent a significant increase in GST burden.
- Considering the option of levying 28% GST on the Gross Gaming Revenue (GGR)/Platform fees, which would be in line with international practices and support the survival of Indian online gaming operators while contributing to the Indian economy.
The investors stressed that the proposed GST rate should strike a balance between promoting the growth of the gaming sector and ensuring a viable business environment.
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