The Union Finance Minister Nirmala Sitharaman has revealed that the GST Council is actively discussing the taxation policies surrounding online gaming, to enable a more investor friendly environment and better tax compliance.
Responding to a query from Korean gaming company Krafton on India’s plans to attract foreign investment in gaming companies, the minister expressed confidence that the sector would attract investment once the discussions regarding taxation and regulation are finalized.
The discussion on various aspects of online gaming, including taxation and regulation, is taking place at the ministerial level in the GST Council, which is chaired by Sitharaman and comprises finance ministers of states.
The COVID-19 lockdown led to a surge in online gaming users in India, and according to a recent report, the sector’s revenue is expected to rise from Rs 13,600 crore in 2021 to Rs 29,000 crore by 2024-25.
With virtual reality ruling all aspects of our lives, gaming is no exception. Owing to the pandemic, not only adults, playgrounds for kids had also shifted to the screens. The online gaming industry in India has seen exponential growth in terms of both revenue and usage. It is anticipated that the online gaming industry would grow at a compounded annual growth rate of 22% and is expected to become a $2 billion industry by the end of 2023.
There are various models through which the online gaming industry is functioning.
The key ones include the gaming platform charges ‘rake fees or enrollment fees to the players for usage of online gaming platforms. In such cases, the platform may or may not allow gaming through monetary methods. In case players play games with monetary amounts, there is generally a prize money pool which is nothing but a pool of all monetary contributions. This prize money is later on released to the winner of the game after deducting a commission of the platform.
However, in case of non-monetary games, only rake fee is charged from players for facilitating the game. The gaming platform or app does not charge any rake fees to the player. However, the player may have to pay for any additional features such as unlocking the next level, buying extra life, performance boosters etc.
Monetary or not, the taxation of Gaming Industry and the services provided is still at its infant stages. The Issue of levying GST on online games has been unresolved for almost two years, with several states advocating for a lower tax rate on skill-based games. They contend that games of skill should not be treated similarly to games of chance.
The GST Council is expected to make a final decision on the taxation of online gaming at its upcoming meeting, likely to be held this month or in June. Last month, the Ministry of Electronics and IT issued regulations for the online gaming industry that explicitly prohibit any games involving betting or wagering.
The online gaming industry may adopt a self-regulation model and initially establish three self-regulatory organizations (SROs) that approve games operating in compliance with regulations.
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