Gaming Industry’s GST Rate of 28% – The Reason Why Industry Might Hit a Bump & Role of GST Software
The online gaming scene in India has been on an impressive growth journey, solidifying its position as one of the fastest-expanding internet-based industries in the nation. Nevertheless, this promising trajectory faces potential disruption due to a recent governmental directive aimed at increasing the gaming industry’s GST rate. So, the question arises how the industry’s growth will pan out and what role technology like apt GST software plays in all this?
In a decision by the Goods and Services Tax (GST) Council, the current GST rate on online gaming is 28% on the revenues generated by gaming companies. This move is anticipated to have profound and wide-ranging repercussions, exerting a significant influence on the entire industry. While increasing the gaming industry GST rate, casinos, and horse racing wasn’t entirely unexpected, the specific percentage of GST on online gaming in India chosen has taken the players by surprise.
While declaring this rate change, Hon’ble Union Finance Minister Nirmala Sitharaman clarified that the change to 28% GST on online gaming will not cripple the gaming industry. Considering the taxes at par with the essential commodities, it would be unfair to tax online gaming at the same rate.
This also holds true looking at the technological advancement the gaming industry has shown in the last decade, it being one of the best industries to use technology to its advantage. Surely, inculcation of advanced GST software is just a cakewalk for the gaming industry players.
Prior to jumping into the effects of the current GST rate on online gaming, let’s acknowledge the industry’s notable achievements to date. Over the past 5 years, the Indian gaming sector has secured an influx of funding amounting to $2.8 billion from domestic and international investors. The overall revenue generated from online gaming was 35% in 2022. This unexpected upward growth has helped analysts to project a revenue of more than $5 billion by 2025.
What will be the impact of the 28% gaming industry GST rate?
The introduction of a 28% GST on online gaming in India will directly impact the overall prize pools and the face value of online games. In essence, this tax will be imposed on the funds collected by gaming companies from their customers. Consequently, the consumers themselves will bear the brunt of this tax, resulting in increased expenses for players.
This added financial burden may hold back individuals from participating in online gaming, as the elevated costs can render it less attractive and affordable for many. Furthermore, this situation may drive certain players to explore alternative options on offshore or illicit platforms not subject to taxation.
The significant gaming industry GST rate will lead to a decrease in the overall rewards offered within games. The current GST rate on online gaming is elevated and it makes online gaming in India appear less appealing when coupled with platform fees and the tax Deducted at Source (TDS) on winnings. Consequently, gamers are migrating away from these platforms, forcing companies to re-evaluate their approaches to stay afloat. Unfortunately, the online gaming sector in India is currently facing the grim possibility of having to implement substantial job reductions. This decision is also impacting the investors abroad. This decision jeopardizes the hundreds of Indian start-ups.
According to Ankur Gupta, Practice Leader – Indirect Tax at SW India, “Ignoring the long-time demand of the gaming industry, levying a 28 percent tax rate as the new GST on online gaming in India will be a big setback for Indian players. We might immediately see notices being issued to the gaming players for differential tax and with this new series of litigation.”
One way the industry players can lessen the burden of extra costs for the gaming enthusiast is by using GST software that can significantly reduce the cost of compliances and help industries cope with compliance regulations more smoothly.
Impact of Gaming Industry GST Rate on Online Gaming Stocks
After the announced rate increase by Sitharaman, the next day, the stocks of Nazara Technologies, Delta Corp, Zenzar Technologies, and OnMobile Global slammed down 1-20%. The shares of online gaming companies have had a drastic movement in the past few days, and it is expected to have more changes in the near future.
Can online gaming continue to thrive?
Each and everyone is of the opinion that the current GST rate on the online gaming industry is definitely going to impact the industry very badly. Will there be an increase in users of illegal betting platforms? Will this lead to a loss of tax money for the government? Will this bring an end to investing in the gaming industry? Or is this murdering the fantasy gaming industry? as opinionated by Ashneer Grover, the Indian businessman, former co-founder, and managing director of the Indian fintech company BharatPe. We shall get to know these answers soon!
But one thing is certain: Using GST software can help the industry thrive with compliance challenges. GSTrobo software’s advanced AI and cloud-based solution can integrate with any ERP/POS to provide fast and easy GST return filling, generation, and tracking e-invoices and e-way bills and do precise reconciliation.
