Overtaxing online gaming will favour grey operators

Source– The post is based on the article “Overtaxing online gaming will favour grey operators” published in the mint on 14th October 2022.

Syllabus: GS3- Economy. GS2- Government policies

Relevance– Online entertainment platforms

News- The article explains the repercussions of the proposed move to increase GST in the online gaming sector to 28% of the entire prize pool.

Online gaming industry is generating $20 billion revenue and entertaining 200 million people. It is expected to reach $25 billion by 2030.

What is the taxation structure for the online gaming industry?

Online gaming industry currently pays 18% GST on its revenues or platform fee intake for providing their platform. The platform fee intake is about 15% of the overall prize pool in the contest.

What will be the impacts of 28% GST on the entire prize pool?

It will make it impossible to achieve PM Modi’s vision of India becoming a superpower.

It will lead to an increase in the effective tax burden. The tax will be almost twice of operator revenue.

It will give rise to grey market operators who will evade taxes. It is not possible for tax complaint operators to compete with them.

The industry may not find these things sustainable. Closure of industry will lead to job losses and tax revenues losses for the government.

Why is higher taxation being proposed?

It flows from the argument that games of skill are required to pay GST on the entire pool instead of tax revenue.

But the law states that the entire pool is taxable in the case of betting and gambling. Higher court judgments have established that games of skill do not constitute gambling.

Some people in the government and civil society organisations take it as a social evil.

What is the way forward?

Shutting down local industry is not the solution.

India can learn from western countries who are experienced in this field.

An industry-friendly, progressive policy is needed which focuses on consumer protection.