Three online gaming industry bodies, the E-Gaming Federation (EGF), All India Gaming Federation (AIGF), and Federation of Indian Fantasy Sports (FIFS), have reached out to the Central Board of Direct Taxes (CBDT) and the Prime Minister’s Office (PMO) to oppose upcoming changes to tax deduction, at source (TDS) and Goods and Service Tax (GST) in the sector.
In a letter sent to the CBDT on February 23, the industry groups urged the board to reconsider changes to the TDS regime, which are to come into effect on April 1.
The organizations also sent a letter to the PMO on February 9 requesting that online gaming not be classified alongside gambling, horse racing, and casinos, which are taxed at the highest rate of 28% under the ‘sin tax’ label.
Currently, online gaming firms must charge a 30% TDS on any winnings withdrawn by users that exceed INR 10,000 per transaction. From April 1, the threshold will apply to users’ annual earnings. In other words, any online gaming winnings between April 1 and June 30 will be subject to a 30% TDS. From July 1, however, there will be no threshold for the application of TDS, and any transaction on an online gaming platform will be subject to the tax.
In their letter to the CBDT, the industry groups argue that implementing the new TDS regime will leave room for ambiguity in terms of how tax is calculated for the two regimes after March 31, and will also significantly increase the cost of compliance, hindering the ability of small companies to operate in the sector.
Many in the online gaming industry are concerned that these changes will prematurely stifle the sector’s growth potential. Saumya Singh Rathore, co-founder of Delhi-based gaming firm Winzo Games, said, “Online gaming has the potential to emerge as the next big new age export economy for India, but imposing 28% GST will prematurely stifle the sector. There are many early stage companies in the sector. However, increasing tax rates for the sector will take away companies’ ability to survive. It also affects creators, whose earnings will be stifled.”
While a group of ministers (GoM) chaired by Meghalaya chief minister Conrad Sangma has already submitted its report to the GST Council, the appropriate rate of taxation on online gaming remains a long-standing debate. Meanwhile, the representation filed with CBDT on February 23 seeks to ease compliance issues.
“The TDS regime does not, theoretically, increase any tax burden for companies. However, it could act as a deterrent for many casual players, if they were to have a sizable tax being implemented on every small-ticket casual title they would play” an industry expert said.
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