July 17, 2023
Good morning. In today’s either/view, we discuss whether a 28% GST on online gaming & gambling is too harsh. We also look at the new cinema halls in J&K, among other news.
📰 FEATURE STORY
Is a 28% GST on online gaming & gambling too harsh?
Over the past year or so, there have been spirited debates on how best to regulate the online gaming space in India. Gaming companies, platforms, and startups are on one side and the government is on the other. Some states don’t want anything to do with online gaming and gambling. They see it as nothing more than a vice. While the issue of whether online gaming & gambling is ethical at all continues, one aspect of the debate is how much tax to levy on these companies.
We now have that answer. The GST Council decided on a 28% GST for the sector. According to gaming companies, that’s as bad as it could get. They’ve come out strongly against that number, saying it’s only going to curtail their and the sector’s growth. The government, on the other hand, deems it appropriate.
Context
The growth of the online gaming space in India has been relatively recent. The sector is very much in its nascent stages in the country. While it’s young, it’s also quickly growing. The pandemic only accelerated that growth. Generally speaking, online gaming isn’t prohibited in India. Games involving money are allowed in most states.
Gaming companies and unicorns view India as a ripe market. Here are some figures to illustrate why. A KPMG report projected the sector to generate over ₹29,000 crore as revenue by 2025. The user base is expected to be well over 60 crores, and the industry will employ over 70,000 people.
With numbers like that, there’s little chance all this occurs without the government having a say. In December 2022, Rajeev Chandrasekhar, the Minister of State for Electronics and Information Technology (MeitY), said the government plans to regulate the online gaming space. The Centre’s position was that it would be done under the government’s understanding that technological innovation is vital to the Indian economy. But also to ensure there is no funny business.
Here’s the basic premise – state governments would oversee law and order issues concerning online gaming within their jurisdiction. Meanwhile, the Centre will take a bird’s eye view and draft overarching regulations. In January, Chandrasekhar said online gaming companies won’t be allowed to bet on the outcome of games.
The only law that regulated gaming gambling was passed in 1867. It was the Public Gambling Act. Given the year, there’s obviously no mention of the word online. Even the 2000 Information Technology Act doesn’t mention online gaming activities. The practice of going to any legal casinos, of which there aren’t many in India, is not exactly widespread. So here’s where the internet comes in.
The online real-money gaming space had long sought central regulation instead of state-wise laws. So, what are online real-money games? It’s in the wording itself; people play for real money using real money. In April of this year, the Centre released rules for real-money gaming. It was seen as a light-touch approach with coordination between MeitY and registered self-regulated bodies. But it wasn’t all the sector hoped for since state-level anti-gambling laws remained.
In May, there was a proposal to increase the GST on online gaming, race courses, and casinos. At the time, stakeholders from the gaming space welcomed a regulatory framework. However, they were hesitant about any increase in GST from the existing 18%, which they were content with.
After plenty of back and forth, the government has finally decided to levy 28% GST on all forms of online gaming. This also includes horse racing and casinos. This means the government is equating skill-based online games where there’s no gambling with online games of chance where there is gambling.
Is this too harsh on a sector with a lot of promise, or did the government make the right call?
VIEW: It’s the right move
The government acknowledges that the sector and its regulation challenges are complex. Finance Minister Nirmala Sitharaman said the intention isn’t to kill the Indian online gaming industry or casinos in the states they’re in. Some states shared concerns about the online gaming/gambling sector. The Centre saw this entire issue as a moral question – can we encourage online gaming/gambling more than essential goods?
It’s within the government’s purview to tax any form of entertainment. An industry like online gaming/gambling can’t operate for free, especially when real money is involved in many cases. The government also has to look after finances and think about the economics. With the current announcement, they could earn ₹20,000 crore as additional revenue. Back to the moral argument, the government can’t be seen as lenient in this sector in particular.
Last year, the government collected only ₹1,700 crore as GST from this sector. Currently, the companies operate under 18% GST of Gross Gaming Revenue (GGR). That works out to only about 2-3%, less than the 5% for many essential goods. The companies were comfortable with the differentiation of games of skill versus chance. The GGR was only on platform fees.
COUNTERVIEW: It’s a death knell
The response from the industry was swift. This is bad news, especially when games and companies are increasingly bullish on the sector. If there was one thing that companies wanted to be sorted out, it was the regulatory and tax regime. Never mind that some states want to and have outright banned online gaming/gambling; the 28% GST announcement feels like rubbing salt into the wounds. Also, why not follow the global standard when tax is levied on the GGR?
The Internet and Mobile Association was one organisation that criticised the decision. The whole point was not to club legitimate online gaming with gambling activities. The government’s decision will discourage more players from trying online gaming. Their winnings will reduce. Under the previous structure, if a player bet ₹100, including a ₹10 platform fee, the GST was ₹1.80. Now, the GST would be ₹28. So, they’ll have only ₹62 to play with. It’s only going to make the experience more expensive.
What’s likely to happen when players are discouraged this way? They’ll probably shift to illegal platforms. That’s not good for legitimate companies. The online gaming startup space has seen about $2.5 billion worth of investments. The online gaming space is probably the only segment of the internet economy with profitable companies like Dream11 and Gameskraft that runs RummyCulture. When company margins are between 10 and 15%, paying 28% GST is financial overkill.
Reference Links:
- The Online Gaming Regulation Conundrum: Who Will Regulate The Sector? – Outlook
- Timeline of India’s draft online gaming rules – Economic Times
- New Dawn for India’s Online Gaming Industry with Introduction of Central Rules for Real Money Games – The National Law Review
- Online Gaming In India: A Look At The Sector’s Evolution And Regulation Over The Years – APB Live
- Will 28 percent GST kill the online gaming industry? – Forbes India
- 28% GST on online gaming to yield Rs 20,000 cr annually: Revenue Secretary – Economic Times
- Online gaming companies, associations write to Centre to reassess 28% GST: Report – Business Today
- India deals a 28% tax blow to online gaming industry – Tech Crunch
What is your opinion on this?
(Only subscribers can participate in polls)
a) 28% GST on online gaming is fair.
b) 28% GST on online gaming is unfair.
🕵️ BEYOND ECHO CHAMBERS
For the Right:
Narendra Modi Knows an Actual UCC Will Be an Electoral Disaster for Him
For the Left:
To be effective, critiques of Hindutva must incorporate the ideas of the Pasmanda Muslim movement
🇮🇳 STATE OF THE STATES
New cinema halls (Jammu and Kashmir) – On Saturday, Manoj Sinha, the Lieutenant Governor of Jammu and Kashmir unveiled two cinema halls in North Kashmir, one in Baramulla and the other in Handwara. During the inauguration, the L-G said cinema was back in Baramulla after 33 years. They are set up under a public-private partnership. The first movie to screen in the theatres is Pathaan.
Why it matters: The J&K administration stated that the new multipurpose cinema halls will provide Kashmiris leisure and recreational avenues and a space for the youth to congregate and rejuvenate through seminars. It’ll revive cinema culture in the region. Last year, the L-G administration set up two similar theatres at Shopian and Pulwama in south Kashmir. Kashmir got its first multiplex in 2022 in Srinagar, established by a private company.
Textile mills strike (Tamil Nadu) – On Saturday, several textile mills in the micro, small and medium-scale (MSME) segment put up the shutters due to high production costs that made operations unsustainable. The open-end spinning mills went on strike from July 10, and the MSME mills joined on Saturday. They demanded a prompt withdrawal of 11% import duty on cotton and a two-year moratorium to repay term loans and Emergency Credit Line Guarantee Scheme dues. They’ve resolved to refrain from selling yarns until conditions improve.
Why it matters: The strike will affect GST payments and power costs, causing the state government substantial revenue loss. On Saturday, the production of goods worth ₹85 crore was affected. Ravi Sam, chairman of Southern India Mills’ Association, and T Rajkumar, chairman of the Confederation of Indian Textile Industry, said the demand for yarn was low. Tiruppur received half its expected orders this year, and Karur didn’t record any growth.
Investors meet at Raipur (Odisha) – The government organised a two-day meet and roadshow in Raipur to attract investments that ended on Saturday. It boasted the potential of the recently developed Biju Economic Corridor along the Biju Expressway in eight districts, including Sundargarh and Sambalpur. There were discussions with over 50 industry leaders and representatives from various companies like Vedanta and JSPL attested to the promises of operating in Odisha.
Why it matters: The state government showcased its commitment to promoting units in metal ancillaries and food processing. The Biju Economic Corridor and Biju Expressway were in the spotlight for their potential to catalyse economic growth and foster connectivity. State delegations emphasised Odisha has consistently grown above the national average and the government’s role in cultivating a favourable ecosystem for investors. A few investors have shown interest in setting up units in the newly built corridor.
Model road network (Rajasthan) – CM Ashok Gehlot laid the foundation stone of 4,101 road development projects in 232 municipal bodies costing ₹1,528 crore and increasing the total road length by 2,642 km. He asked officers of the concerned department to finish the projects on time and monitor their quality. CM Gehlot said that ₹55 crore has been earmarked to construct the Centre of Excellence for road and building construction in Jaipur.
Why it matters: A strong road network is vital for any state’s development. To strengthen road infrastructure and connectivity, tribal and desert areas and other areas with a population of more than 350, per the 2011 census, are being connected. Besides infrastructure, the government is taking measures to reduce accidents. It has fixed 1,365 black spots or danger zones out of 1,548 such spots.
4-member Education Commission (Meghalaya) – The government appointed Sherwin May Sungoh, head of the Education department at the North Eastern Hill University, as the chairperson of a four-member State Education Commission. The newly set up commission will suggest reforms and policy changes for promoting quality education in schools, colleges and higher and technical education institutes.
Why it matters: The commission will ensure that major concerns of Meghalaya’s education sector are addressed and their improvement accounted for. The committee was tasked with fulfilling the requirements of the NEP 2020 and advising the government on all school and college-related matters. It will help establish pay parity for teachers.
🔢 KEY NUMBER
₹80 – The Centre is selling tomatoes at ₹80 per kg from July 16 to relieve people from exorbitant vegetable prices.