India deals a 28% tax blow to online gaming industry

India plans to impose a significant tax on the fund that online gaming firms collect from consumers in a major blow to the fast-growing industry that was quick to label the move as “catastrophic” and “unconstitutional.”

The Goods and Services Tax Council, which comprises top federal and state finance ministers, said it had agreed to levy a 28% indirect tax on online gaming, casinos and horse racing. The council said there should be no distinction between “game of skill” and “game of chance,” closing a loophole that has allowed fantasy sports companies to justify their offerings as skill-based.

Online gaming is one of the fastest growing consumer internet businesses in India. Fantasy sports startups — including Dream Sports, backed by Tiger Global and Alpha Wave Global and valued at over $8 billion, and Sequoia India-backed Mobile Premier League — have altogether raised billions as a generation of internet users build a habit of making bets on real-world sporting events in hopes to make money.

Roland Landers, chief executive of All India Gaming Federation, a trade body that represents many players including Mobile Premier League, Gameskraft, Paytm First Games, Zupee, Nazara and Rush, alleged that the GST Council’s decision is “unconstitutional, irrational, and egregious.”

“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,” Landers said in a statement.

Tuesday’s announcement follows the Indian IT Ministry directing gaming firms to form self-regulatory bodies to determine which games are permitted in the country.

India’s Finance Minister Nirmala Sitharaman said the GST Council would work closely with the IT Ministry on recognizing games under the online gaming category.

“What we are taking as a position is this is purely on the taxation,” she said at a press conference in New Delhi following the GST Council’s 50th meeting. “We will still align with what the MeitY (the Ministry of Electronics and Information Technology) wants to bring in as their regulation.”

Earlier this year, New Delhi amended its IT law to crack down on online games offering betting services. It also tasked the gaming industry to form self-regulatory bodies.

“Our intention is not to end online gaming, casino, horse racing. But all these have become so complex that go this route or go that route, each route has transparency to a certain extent, but after that, it is opaque,” Sitharaman said.

Malay Kumar Shukla, secretary of E-Gaming Federation, which represents Games 24×7 and Junglee Games, said the government’s move was “extremely unfortunate” as it will lead to “a nearly 1000% increase in taxation and prove catastrophic for the industry.”

“A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry’s image and capacity to survive,” said Shukla in a statement.