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An urgent need for uniform regulatory framework to overlook online gaming industry in india

Important Step to safeguard the interests of the Online Gaming industry

Published: May 13, 2022 04:37:17 PM IST

An urgent need for uniform regulatory framework to overlook online gaming industry in indiaWhile the online gaming platforms continue to see a steady exponential growth in India, the lack of a uniform regulatory framework to overlook the industry continues to present challenges for the operators. A new curveball for the industry has been thrown in recently, with the GST Council and Ministry of Finance bringing together Casinos, Race Courses and Online Gaming for a reconstitution of GST rate and valuation.

But including online gaming, which has already been established as a game of skill by multiple court rulings in several High Courts and the Supreme Court of India, into this subset lacks logical reasoning. In this current regime post GST, the industry is taxed under HSN Code 998439 @18% on platform fee/ Gross Gaming Revenue (GGR), which industry experts feel is business viable and conducive to sustain the current growth trajectory of the Online Gaming industry.

"Anything additional in terms of tax implications will have detrimental impact on the growth of the industry. It is a very optimal level at this point of time, and should continue the way it is," Sameer Barde, CEO, E-Gaming Federation, said in a recent interview.

Online Gaming operators that are running within the purview of India legal system have made strict guidelines to ensure there are no legal crossovers with gambling avenues. There is a strict age limit to participate on most online gaming platforms. There is also a deep-rooted need for skill and knowledge that a user needs to be financially successful on Online Gaming platforms. For eg: Fantasy Sports (an online game) users need to have skills and knowledge about the sport and the players they are including in their teams.

Keeping these factors in mind, most online gaming platforms keep their average participation ticket price at a low cost, somewhere between INR 25-35, which is incomparable to unrestrained entry values in activities such as horse racing or casinos. Hence, online gaming platforms require a different regulatory and taxation regime.

"One of the biggest hurdles we face is around regulatory uncertainty. Games of Skill are essentially legal and can be played for real money and are protected under Section 19 of the Constitution. Unfortunately, some states, in spite of these judgments, have chosen to ban all games including Games of Skill," Sameer Barde added.

There is a widespread belief among experts that the online gaming industry will face dire consequences if there are changes made in the current taxation regime. As per a recent report from EY, most industry operators have a platform fee in the range of ~ 4% - 20%.
For eg: If any FS user plays a game of INR 100, the FS operator earns a value anywhere close to INR 4 to INR 20. If GST is charged on the entire stake value in this case, there is no room for earning revenue for the FS operator, and the business model will collapse.

With the industry being currently deemed as the sunrise sector in India, higher taxation can lead to negative impact on the Online Gaming operator’s business and in turn a significant negative impact on the economy. The industry forms a key part of India’s high potential AVGC industry, and is already attracting a large portion of FDI, which is expected to rise exponentially in the next three years.

The enhanced consumer interest and tax revenue is bound to help the government in the long term and make India a dominant global force as an online gaming hub, something which has been envisioned by Prime Minister Narendra Modi, to make India a self-reliant nation in the industry.

Hence, it is essential, key steps are taken to safeguard the interests of the Online Gaming industry, when the Government rolls out a new Digital India Act to replace the two-decade old laws and regulations. A dialogue between the primary stakeholders of state and central governments, and the self-regulatory bodies of the Online Gaming industry can also help in devising a uniform regulatory framework and prove to be beneficial for all the parties involved.

The pages slugged ‘Brand Connect’ are equivalent to advertisements and are not written and produced by Forbes India journalists.

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