Calling the 28 percent GST on full value of online gaming a "killer blow", gaming industry experts have said that the GST council's decision was a retrograde step that will hurt the thriving sector and lead to job losses.

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Joy Bhattacharjya, Director General of Federation of Indian Fantasy Sports (FIFS), told CNBC-TV18 that it is an extremely unfortunate and terrible decision for the industry. He added that it will also discourage FDI coming in the sector.

The GST council at its 50th meeting in Delhi agreed to impose 28 percent GST on the full value of online gaming, horse racing and casinos. The tax will take effect after amendments are made to the laws.

According to a report by Deloitte, the industry believes that an increase in tax liability from 18 percent on GGR to 28 percent on the CEA (contest entry amount) would result into a significant decline in the tax revenue within the projected period of the first five years. The report also suggests applying 28 percent GST on CEA may result in a reduction of industry revenue by about 43 times in year 5 when the incidence of increased cost on account of increased tax is completely passed on to customers.

Roland Landers, CEO of All India Gaming Federation believes that the decision will wipe out the entire gaming industry and the only players to benefit will be illegal offshore gambling companies.

Below are the excerpts of the conversation.

Q: This has been long awaited. Your first reaction now that the decision has finally been taken. 28 percent. That's the decision.

Bhattacharjya: Very unfortunate decision, extremely unfortunate and terrible for the industry. First and foremost, it is 28 percent and that is high but also the fact that it is on full value and not on gross gaming revenue and it is a killer blow for the industry in terms of both the consumers — because the consumers now do not have an opportunity for the amount of money that they play with, they will get far less in return — and for a game of skill as well.

Secondly, almost $4 billion of FDI was supposed to come in into this industry. Now looking at this completely retrograde step, that capital is very unlikely to come into India, given the fact that this industry will be absolutely crippled.

Thirdly, of course, I mean, so many startups, this whole idea of Atmanirbhar India, so many startups, a $5 trillion economy, the startups in this sector will not be able to survive this. We would urge the government to please reconsider this because it is a death blow for the industry. It's a very, very difficult step for the industry to face.

Q: Your first reaction to the GST council's decision to levy 28 percent GST on online gaming?

Landers: This decision on online gaming is extremely unfortunate. It also ignores the 60 years of settled legal jurisprudence and lumps online gaming with gambling activities which is extremely unfortunate. The central government has been supporting the industry in terms of online gaming rules with the proposition to set up SRB to self-regulate the industry, so this decision is ignoring most of the GoM states and what was suggested in the report.

This move will not benefit anybody, the entire industry would get wiped out. The only players to benefit from this would be the illegal offshore gambling companies and their offerings and that is something we have been fighting for the last 7-8 years. So the Indian SME and the startup communities which have come to the fore over the last 10-12 years, they would be completely wiped out and millions of job losses as well.

Q: In a conversation that I had a few weeks ago, the founders of Games24x7 told me very clearly that they believed in their 16-year journey, that this was going to be an inflection point, because there's been so much litigation, in different High Courts, but they felt that the rules that MeitY had put out, were fair and this would finally be a game changing moment, an inflection point so to speak as far as the business is concerned. Do you believe that this ensures that all of that is undone?

Bhattacharjya: I couldn't agree more. I totally agree with you the way the central government has worked with us, worked with the operators, with everybody in the industry, making sure that it has been given firstly, a home ministry, it has been given laws, self-regulatory bodies (SRBs) are being created to make sure that there's flexibility while making rules and the pace at which it's been done has been absolutely fantastic. So the government machinery has worked so well. So this is even more of a disappointment to us. I totally agree with Roland - we are actually pushing 20 crore consumers away into the arms of illegal operators from outside.

Basically the only people who are benefiting out of this are illegal operations from outside the country. The people who are paying taxes out here, giving jobs out here, they are going to be really badly hurt. It's an extremely retrograde step, especially considering the amount of work that the central government has put into this, the MeitY has put into this over the last year.

Q: Does this surprise you because there has been no conclusive decision. We had a group of ministers (GoM) led by Conrad Sangma, there have been deliberations, there has been so much back and forth, no decision was finally taken at the level of GoM. Then we also saw the MeitY rules coming in. So does this decision then surprise you in the context of the decision that the Union government had decided to take by way of the MeitY rules?

Landers: We are extremely surprised and taken aback. There was a GoM which went on for such a long time and we had the opportunity to meet with all of them, present the facts and give the legal jurisprudence backing which is extremely clear for online games of skill.

The gaming industry was looking forward to a lower rate, but even if one were to go by what the GoM report suggested, it was clear that it should be 28 percent on the platform fee or gross gaming revenue. So, for the GST council to put it in the same bracket as gambling and then to charge 28 percent on the face value takes us back by several years. Now that the gaming industry is a large contributor to this $1 trillion digital economy vision, we will have to really weigh our options as an industry right now. So extremely disappointed and I think it will be curtains for a large segment of the industry.

The industry will have to weigh its options on how to tackle this. At 28 percent on face value this industry won't survive. The only guys to benefit would be the illegal offshore guys who in any case takeout billions of dollars from here without paying any tax. So this is highly unfortunate.

Q: I don't know whether there is going to be any scope or any avenue for review or to think back at this point in time, given the process itself and how long it's taken to get to where we are. But what would you hope for in the fine print?

Bhattacharjya: I can only believe that if the 28 percent is on gross gaming revenue, then as an industry it is something we wouldn't appreciate, we would have preferred 18, but we would accept 28 percent. But if this is on total, then the biggest losses will be from the consumer and the startups.

This is a sector that this government has focused on continuously saying that, this is where the new growth is going to come. And you are basically stymieing all that growth. Over the last year, we have had about 30-35 more people join us at the FIFS and most of them are startups and most of them will not survive this.

If the larger organisations can wade through somehow, it will just wipe out the startup part of the sector and that's really unfortunate. The fresh blood that we were seeing, the new ideas that we were seeing, the innovation that we were seeing, that is going to disappear. Also consumers — we are just pushing them into a situation where they are going abroad, they will go outside because the truth is technology cannot be stopped. It's very easy today in the day of VPNs and so many other opportunities that the consumer has, so you are not going to be able to stop them.

Q: I think it is clear that the 28 percent GST is on total revenue?

Bhattacharjya: I think it is clear that it's on total revenue, and not just on gross gaming revenue. It is really an unfortunate day for the industry. I don't know what to do, but express real sympathy for all the consumers, and all the startups and everyone who will be impacted by this, because this will be a huge impact. The impact goes all the way through, it's not just about, the companies, it's about the tech people that they employed, number of people who are there in the sector, there's a ripple effect.

Deloitte has recently taken out a report saying that, actually putting it on total value is actually hurtful to us. And we have given them all the data we had for them to have a look at it. And they have actually had a good look. So over-taxing this industry will just kill the industry. You are killing the goose that lays the golden egg and that's really unfortunate, given how much good work the government has done in the last year.

Q: What could be the way out of this as far as online gaming companies are concerned?

Bhattacharjya: To be honest, there isn't a way because the taxation is so high that to keep consumers here when they could easily be playing games outside and on the technology today there is no way we will be able to keep them here. There is no way out, we have to look at the options and seriously think how they want to remain in the industry, how they want to face this moving forward. These are going to be very difficult times from here on. What makes it particularly disappointing is the fact that there was so much understanding that the government had about the industry and the kind of forward thinking steps that they were taking.

So I can only hope that in some way we can urge the government to reconsider this because this is killing off a complete sector. We would really urge them this is just the time that the sector is beginning to take off. We would really urge them to reconsider this as hard as they could.

Q: You were talking about 900 companies in the online gaming space, you believe that this is going to be a death knell for the industry. What will be the immediate impact to your mind?

Landers: The immediate impact of this decision would be multi-fold. The consumer would perforce have to move to illegal offshore gambling companies and that is what the industry had been trying to wean people away from.

From the perspective of the operators, it is just not viable to pay 28 percent on the face value and survive. So for a large portion of 900 companies which make up the MSME segment, it is going to be curtains. Gaming is a $2.5 billion industry today and is scheduled to double by 2025. So this decision is going to put a spoke into that juggernaut. This is going to create huge job loss also.

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(Edited by : Pradeep John)

First Published:Jul 11, 2023 11:49 PM IST