Despite the huge growth in the “online gaming” sector in India, the latest changes in the taxation structure could make it difficult for gaming companies to survive the economic turmoil of the next two years. comes this word of caution Roland Landers, CEO of ALL India gaming federation – A 12 year old industry body.
talking to news 18 techLanders explained, “There are 60 years of judicial support for online games. The market in India is divided into games of skill and games of chance. Online gaming itself is huge and includes multiple gaming formats that have revenue streams Varies based on: Forms of games (online) – free or advertising-driven revenue; people paying to participate and in-app purchases for games.
“The growth (of online gaming) has been catapulted by the boost to Digital India, the push for digital payments and the explosion of smartphone users. But out of the 12, we have seen the highest growth in the last 7 years,” he said.
But this growth now faces uncertain times due to planned changes with taxes on online games, which may push Indians towards offshore gaming companies.
Foreign threat to India’s gaming boom
“There is also a gray market in the online gaming space, which includes people (brands) who are off-shore. Most of the companies are based in India, but some are based out of different countries (islands) and offer their services here under the guise of a game of skill.
“They don’t pay taxes, and their major concern is the lack of self-regulatory measures that our members follow, they don’t. So they have the freedom to do whatever they want.” And this is where the AIGF wants the Center to intervene and take over matters, as the regime is at risk of losing lakhs in tax revenue due to these offshore companies.
Since gaming is a state subject, the government has to act at the highest level. “As AIGF, we have been telling the government that this sector needs central oversight as there are state geographies and each state has different interpretations of the law.
Investor sentiment needs nurturing
AIGF realizes the potential of the industry, which according to a recent report from BCG and Sequoia is projected to be a $5 billion market opportunity by 2025, less than three years from now. But a lack of oversight and regulations has plagued the sector, which can easily deter investors.
“No business can grow when there is uncertainty. The ecosystem is made up of investors, gamers and developers and such developments are not encouraging for the industry. We have demanded a central inspection. Online gaming is a $2 billion industry that has grown steadily over the past 5 years, creating jobs, and creating jobs. Hence nurturing this segment is the need of the hour, and Landers is steadfast in its efforts to make this a reality.
Online gaming – States need Centre’s cooperation
According to the Supreme Court, games of skill are legal, while games of chance, which include betting and gambling, can be regulated by the states. You must have heard stories where online games have been banned in one state while operating in another.
“Offshore people are using the confusion about the skill and opportunity loophole to their advantage. The lack of oversight on these companies helps them to change their model based on allowing them to run their business in the country. ”
Lander is adamant that the states should have powers but to an extent, while the Center has to exercise control over the operations of external entities involved in the system.
Online game taxation – a complicated story
But it is not just offshore companies and Landers & Co who have to fight in the country. The government sees the gaming sector as a golden goose and their recent assessment of taxes on online games could make business matters worse for the industry.
The government is planning to impose 28 per cent tax on all types of online games. But the regime is being planned for the entire money spent by a consumer. Taking a simple way to explain this, you have players A and D who are playing and putting Rs 100 into the game. The gaming platform charges 10% from both the players, which comes to Rs 20 (10+10). Now, the government wants to tax Rs 20 and add 28 per cent tax on the entire amount which is Rs 200 from both the players.
“Companies can pay from Rs 20 (which they earn as commission) – but a 28 per cent tax on Rs 200 means players will pay around Rs 70 to the platform. want to make a decent return, but these tax slabs will discourage them to play on India-based platforms and drive them to offshore platforms that don’t charge any tax,” Landers and Dhruv from their team summarized the problem. Available.
“What they do not understand is that companies cannot pay more tax than their own revenue. We have told the government that increased tax will not help drive the sector. Globally, the tax rate Platform fees have always been applied, and we have been demanding this from the government as well. This would be the right way to do it and allow business to continue,” Landers shared his insight.
what india spends on gaming
India has traditionally been a price-conscious market and the hordes of gamers are no different. According to BCG report, most of the gamers spend around Rs 50 but they play again and again. India is home to approximately 400 million mobile gamers, which form the bulk of the online gaming community. Global gaming revenue in countries such as China and the US is close to $200 billion, while India’s valuation of $2 billion is barely scratching the surface.
Now, if the industry has to increase its spending per user or ARPU, the new tax regime will have to be flexible in its approach. “Our members, even the big ones, have told us that if GST goes up to 28 per cent, that too on the full amount (Rs 200), then the increase would be 1100 per cent, which would not be sustainable for businesses. And they will eventually stop in the next one to two years.
He ends the discussion by suggesting that if taxes are done correctly, gamers can play 3 games for Rs 100. And if the changes are not rational, only one game can be played for the same amount of money. “If he loses more for the same money, he will stop playing. These players will get lured by offshore people who have no taxes and everyone loses,” he said.
But Lander is hopeful that the government will take the right steps for the sake of the industry. “If taxes are done rationally, it will be a big boost for the industry – curbing the gray market is also important for the betterment of the sector. We want central regulations that unlock the potential of the online gaming industry in India. Can help unlock.
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