Beware the Taxman
India’s huge 28% tax blow for operators
Minister of Finance, Nirmala Sitharaman, chaired India’s 53rd Goods and Services Tax (GST) Council meeting at the end of June in New Delhi. Many in the gambling industry were hoping for good news when it came to taxing online gaming operators. Frustratingly, there wasn’t any good news.
Some world-weary travellers reckon India stands for “I’d never do it again”, albeit often with immediate replies of “until the next time” retorted. But will frustration and fatigue ultimately ruin what the country worked so hard to achieve with the Nagaland Gaming Act, 2016?
What’s happened?
In July 2023, India’s GST Council announced a flat 28% turnover tax on casino, horse racing bets and online gambling. This brought widespread panic among many operators in India, with gaming companies and associations appealing almost immediately to the government to reconsider.
Superbet, the parent company of Betway, left the Indian market soon after the ruling. Bet365 exited in October 2023 and Flutter Entertainment, which operates the Indian online Rummy room Junglee, is seriously considering its next steps after another fruitless GST meeting.
Many were hoping the 28% levy would be re-evaluated. Maybe if it switched to taxing gross gaming revenue (GGR) instead of deposits, that would have eased the pain a bit and pointed to a step forward.
But it brings us back to frustration and fatigue. This seems like it could turn into a long, tiresome battle that operators won’t win.
Understanding the Implications
Some operators have had no choice but to leave the Indian market. Google even had to revise its Play Store policies around real money games.
Historic tax notices have also been issued to online gaming companies stretching back to 2017 in some instances. Where’s the fairness in that? They will waive all historic interest and penalties on some demand notices, though. How nice of them!
The implications have been colossal for numerous companies and many people have lost their jobs and businesses have been forced to restructure.
You have to wonder whether much consideration has been given to the industry as a whole. Or does the Indian government simply want the industry to disappear? Big players such as Dream 11, Gameskraft, MPL and Games24x7 were all projected to see their revenue soar over the next few years. But what now? Roland Landers, chief executive of All India Gaming Federation, outlined his concerns in 2023:
“This decision will wipe out the entire Indian gaming industry and lead to lakhs of job losses and the only people benefitting from this will be anti-national illegal offshore platforms.”
He makes a good point around illegal offshore platforms. That has to be a future concern. Germany’s recent stake limits have been blamed for a rise in black markets there, so it wouldn’t be a surprise to see this enormous 28% tax ruling causing similar problems in India.
Might we see this kind of brutal attack on the industry repeated in other countries?
Government rationale?
Nirmala Sitharaman clearly stated at the 50th GST Council meeting in 2023 that the idea to tax online gaming at 28% was not to hurt the industry but to simplify it. I’m not quite sure about the rationale behind that, and a year on from that announcement, it’s clear that whatever plan she had in mind isn’t working – certainly not from an operator’s standpoint.
Fast forward to the present day and what has this ruling achieved? Absolutely nothing. It’s had huge repercussions on an industry that was previously booming. The decision is truly baffling.
They had a clear definition between games of skill and games of chance. Self-Regulatory Organisations (SROs) were in place to help with the regulatory system, and Know Your Customer (KYC) checks were being done. Everything looked great and the Indian market was developing slowly but surely.
From the outside, it looks as if the government wants to destroy a healthy industry. The online gaming sector in India is now in real trouble and the higher powers need to recognise that before it’s too late.
Where does India go from here?
For an industry reeling from the latest update on the matter, it’s a case of wait and see for the moment. It doesn’t look like anything’s going to change in the foreseeable future with this topic being overlooked whilst budgeting plans are made for the next four years.
However, if the Indian government can set clear indicators for games of chance and games of skill for taxation purposes, there may be a glimpse of light at the end of this currently very dark tunnel. But right now, no change. The gaming sector needs help and support, but it’s just not receiving any right now.
But let’s look further ahead. If this ruling stays in place, how many dodgy online casinos will appear? What’s stopping other governments in other countries doing the same down the line? The UK’s government gambling white paper raised some eyebrows not too long ago and we are quick to respond negatively about the changes there. But let’s just be thankful we’re not in Indian operators' shoes.
The case against the Indian Taxman
Here’s a summary of industry objections:
- 28% tax levy is too high
- Government is ruining a previously thriving and regulated industry
- Backdated tax notices are unfair
- Job losses are concerning
- Revenue erosion is huge
- Tax GGR instead
- Clear distinctions for tax purposes on different types of games needs to be set
The ‘numbers people’ in the Indian GST Council presumably did some forecasting around projected increased tax revenues as a result of the increase. What they seemingly overlooked is that there would be little or no revenue, let alone an increase, if the industry collapsed.
It’s a worrying time for the industry in India and I just hope that common sense prevails before the sector is on its knees. The situation in India makes you realise how relatively minor some of our domestic concerns about affordability checks and maximum stakes seem in comparison.