The Financial Implications of GST on Online Gaming Platforms

The Financial Implications of GST on Online Gaming Platforms

28% taxes is an excellent idea if an organization solely desires to pay taxes, but let’s get real. No one likes to pay taxes. No one ever said, “I love paying taxes”. Taxes, while they serve as the primary source of revenue for governments to sustain the economy of a nation. They should not forget it comes from a chunk of people’s livelihood. The recent move by the government to tax online gaming at 28% GST has been a very controversial move which has questioned the future of online game development in India.

Though the companies are being taxed, this will be passed on to the consumer and indicated GST on the transaction receipt. The problem with this is it's not exclusive to gambling games, this is applied to online gaming as a whole.  The problem of equating online gaming to gambling is a dangerous mistake to make. While all gambling games are online games, all online games are not gambling games. This sets an unwelcoming precedent for game developers in the future.

Culling Gamblers

One reason that the authorities have provided is that they desire to stop people from gambling away their savings and not racking up immense debt. Debt is a bad thing for the holder where they are led to a life of indentured servitude or out of fear and shame, they take drastic measures.  And now with widespread internet access, youths are also getting into gambling, this is a serious issue as individuals who are not employed are getting severe addiction to this.

Coming to the matter of online gambling, they are addictive by design and since they barely skirt the legal guidelines, regulators are having a hard time countering them.  youths addicted to gambling are not a pretty picture, considering the money they dispose of is not their own but that of their families. Overall, the addictive nature of “just one more round” never ends well except for the house raking in the money. It’s common for families to collapse over gambling debts, divorces, disowning, you name it and gambling addiction has done it all.

Change in Pricing Structure

It’s already established in the intro that the cost is going to be passed to the consumer. So, the existing pricing strategy has to be drawn up in such a way that it is inclusive of the new tax structure. So Gambling platforms/sites have to redraw their entire pricing points and payouts such that it is inclusive of taxes, and this obviously means higher pricing than the prior new tax structure. This is also inclusive of overseas transactions. Like all activities that involve money, this will definitely impact how the market would respond.

Though the currently profitable companies can make ends meet with lower profits than before this tax structure will definitely discourage new game developers to enter their market. The blanket tax for online gaming as a whole looks like a poor decision, though there are good intentions behind it, we cannot infer how much damage it will cause in the future as this is effectively crippling an entire industry.

Outlook Towards Gaming

The internet is collectively giving mixed reactions to this response, some are congratulating the government for taking the initiative to cull rampant gambling, and some are against it stating that this will discourage all genuine good games which aren’t gambling games.

Gaming is one of the essential past times which picked up a huge following in the pandemic and a lot of sponsors of IPL were fantasy cricket apps, so gaming has gained huge traction in India in this decade, this tax structure will effectively strike their profitability and will stall the growth of gaming for a while. I believe this would require a serious do-over, and a one size fits all solution is a bad idea considering how diverse gaming is.