The Goods and Services Tax (GST) Council resolved to impose a standard 28% tax on the entire face value of online gaming, gambling, and horse racing during its 50th meeting on Tuesday, July 11.
In order to facilitate this, the government is now anticipated to introduce a legal amendment during the monsoon session of Parliament. This amendment will include online gaming and horse racing under the definition of an actionable claim, facilitating taxation of these categories without distinguishing between games of skill and chance.
Online gaming companies have expressed concerns about the impact of this decision on the sector, as it is likely to damage volumes and, consequently, the profitability of gaming enterprises, despite the government’s insistence that it is not intended to end any industry.
On the face value of the chips bought in casinos, the whole value of the bets put with a bookmaker or totalizer in cases of horse racing, and the total value of bets placed in cases of internet gaming, a uniform tax of 28% will be applied.
Platforms for online gaming and gambling have all been subject to the decision. This includes businesses that have lobbied for years to distinguish between games of skill and games of chance to set themselves apart from gambling platforms. Thus, Online gaming may be the only sector of the Internet economy with many extremely profitable businesses.
Here Are Some Of The Implications Of The Tax:
Might Increase Black Operators:
E-Gaming Federation (EGF), whose members include Games 24×7 and Junglee Games, said that a tax burden where taxes exceed revenues would not only make the online gaming industry unviable but also boost black market operators at the expense of legitimate tax-paying players.
Impact on Expansion:
According to online gaming companies, the new GST regulations will limit their capacity to invest in new games and adversely affect cash flows and company growth. The ruling will constitute a significant setback for the fantasy gaming sector, whose income was anticipated to surpass Rs 25,000 crore by 2027. The ruling was labelled as unlawful, unreasonable, and egregious by the All India Gaming Federation (AIGF), which stands for businesses like Winzo, Zupee, GamesKraft, and Nazara.
Loss of FDI:
The decision will significantly impact the $2.5 billion existing FDI (foreign direct investment). According to Joy Bhattacharjya, director general of the Federation of India Fantasy Sports (FIFS), it could jeopardize future FDI in the sector.
Additionally, the choice will lead consumers to use unlicensed betting sites, putting them at risk and costing the government money, according to Bhattacharjya.
Impact On Gaming Stocks:
Shares of Nazara Technologies, Delta Corp, Zensar Technologies, and OnMobile Global fell 1-20% on Wednesday, July 12.
At Rs 197.45, Delta Corp shares even crossed the lower circuit barrier of 20%. Shares of OnMobile Global fell 5%, while Nazara’s shares plunged 6%. Early trading saw a 1% decline in Zensar Technologies shares, but they soon recovered. It is expected that shares might go down even further.
Loss Of Revenue:
According to a Deloitte assessment, the sector anticipates a considerable drop in tax income during the anticipated first five years if the tax liability is raised from 18 percent on GGR to 28 percent on CEA (contest entry amount).
According to the analysis, when the impact of higher costs due to the additional tax is fully passed on to customers in year five, implementing a 28 percent GST to CEA may cause a drop in industry income of roughly 43 times.