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Indian and foreign investors in the online gaming sector have written to Prime Minister Narendra Modi regarding the recent decision by the GST Council to impose Goods and Services Tax on the online gaming sector and operators by changing the methodology of determination of “value of supply” from the decade-old practice of charging Service Tax/GST on the operator’s gaming revenue to a levy of GST on the “full value”.
The investors said in the letter that the decision has “unintended consequences” since it equates the legally protected online skill gaming market with betting, gambling, and other “games of chance.”
According to the letter, “We invested in this sector to make India the world’s gaming capital, which would help in generating, among other things, high-skilled jobs, billions in foreign capital, and make the country a net exporter of innovation in gaming and related fields like animation, artificial intelligence, and visual effects.
They also expressed their happiness over the changes made to the Income Tax Act and the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (IT Rules), which both pieces of legislation have made it clear what constitutes “games of chance” and “legitimate” online gaming.
The investors argued that the skill-based real money gaming industry also provides employment for a sizeable section of the nation’s game developers, who are essential to PM Modi’s goal of turning India into a gaming giant.
The letter continued, “The current GST proposal will establish the most onerous tax regime for the gaming sector globally, which will result in a potential write-off of the $2.5 billion capital invested in this sector and negatively impact future investments to the tune of at least $4 billion in the next three to four years and India’s gaming sector.”
Online Gaming Sector Valuation
Investors anticipate that the online gaming sector will contribute roughly 4,500 Crore in GST at a rate of 18% of the operator’s gaming revenue; in the financial year 2024, the rate will rise to 28%.
Additionally, they asserted that this negative impact on the industry is anticipated to lead to the loss of over 50,000 high-skilled jobs and a further loss of possibilities for over one million Indian residents who are indirectly connected to this business in terms of employment.
The investors requested a quick meeting with the prime minister or other important office personnel. “We look forward to your continued leadership and greatly value your commitment towards creating an environment that will attract investments and help India reach its target of having a $5 trillion economy by 2025,” the letter stated.