Online Gaming Industry Eyeing Positive Tax Breaks in Budget 2023

Budget 2023
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  • Attreyee Khasnabis January 31, 2023
  • 3 Minutes Read

The 2023 Union Budget session is scheduled for tomorrow, February 1. In the lead-up to this important annual event, the real-money online gaming industry is optimistic about some relief.

2022 was a chaotic year for the industry. On the one hand, the Central Board of Direct Taxes (CBDT) and the Enforcement Directorate (ED) made crackdowns on many real-money online gaming companies and professional players. Conversely, the Group of Ministers (GoM), anointed by the GST Council, recommended a 28% GST across the gaming sectors even as a confirmation on the valuation methodology for computing the tax remains unclear.

The central government’s decision to regulate the industry has sparked hope for a more structured future. While the Ministry for Electronics and Information Technology (MeitY) has announced the creation of ‘Draft Amendments to the IT (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021,’ there are still no concrete regulations for the industry.

India is currently the largest mobile gaming market in the world in terms of app downloads. Online gaming revenue saw a growth of 28 percent to $1.2 Billion in 2021 and is expected to reach $1.9 Billion by 2024. The country’s gaming industry could reach ₹38,000 Crores by 2026.

While the question of GST will perhaps be discussed (if not resolved) in the 49th GST Council meeting (the dates for which are yet to be announced), the regulation concerning the industry is in the hands of the Law Ministry, which has recently asked MeitY to put on hold the draft online gaming policy until it can present a “comprehensive” report on the subject.

However, the tax deducted at source (TDS) on winnings is an area where the industry can face some roadblocks. Currently, TDS of 31.20% (including surcharge) is deducted from all winnings exceeding ₹10,000. Given the fast-paced growth of the sector, the TDS threshold could be reduced in the upcoming budget, which would be a significant hit for the industry.

The co-founder of WinZO, Paavan Nanda, talked about the possibility, saying, “The proposed 28 percent GST on the Gross Gaming Value of all games played, over the current 18 percent on the commission of the gaming companies, would have an existential impact on the segment. Further, a reduction in the TDS threshold from the current winnings exceeding ₹10,000 could also impede the growth of the industry. The TDS liability on winnings above 10,000 already stands at 30% under the Income-tax Act of 1961.”

Paavan Nanda
Paavan Nanda

 

“The increase in GST and TDS cumulatively would completely wipe out the homegrown industry that has the potential to be the largest next generation of exports of consumer tech products made in India for the world. In this budget announcement, we are hoping to see a continuation of the current GST slab and TDS threshold, as a sharp increase in tax will deter growth, sink early-stage startups further into losses, and overall make the industry unviable. A clear and supportive tax policy will not only generate revenues for the exchequer but will also create great value in the long run for the country and the gaming ecosystem,” he added.

Considering the revenue potential of the real money gaming sector, it is evident that industry stakeholders want the upcoming budget to have some favorable outcomes for them.

 

Industry Stakeholders Discuss Their Expectations From Budget 2023

Roland Landers, CEO of the All India Gaming Federation (AIGF), talking about expectations from Budget 2023, said, “A well-clarified and progressive taxation regime would provide an immense boost to this sunrise sector. Such a move will make gaming a cornerstone of Digital India and be the catalyst for India to achieve its goal of a trillion-dollar digital economy.”

Roland Landers
Roland Landers

 

“We hope the government provides clarity on the tax slab applicable on skill gaming,” said Sai Srinivas, co-founder and CEO of Mobile Premier League (MPL).

Sai Srinivas
Sai Srinivas

 

Esports Federation of India President Vinod Tiwari said, “The Budget needs to be increased and allocated extensively for the growth of esports and the training of athletes. We need to find ways Indian esports can be taken further to the global platform, which is only possible with better infrastructure, financial aid, and the right environment to nurture these talents.”

“It would be a great advantage to the esports community if our Government considers allocating the “Esports Development Fund” similar to countries like Malaysia, Korea, etc. which would support Indian gaming studios to build esports video game titles based on Indian history/ethos,” Tiwari added.

“It is tough to predict much, but it would help the esports sector if the government can allot a decent share of the budget for the esports industry. Indian Esports still has a long way to go and needs attention on funding for research and development; it needs reforms in tax incentives for game developers and esports organizations,” said Richa Singh, CEO and co-founder of FanClash.

Richa Singh
Richa Singh

 

“More training centers need to be built; we need professional trainers and exchange programs which could be beneficial to strengthen their strategies and be prepared for international tournaments.”

“Governments may also consider regulations and policies to support the growth of the industry to minimize risks of fraud, protect the rights of gamers and promote fair competition,” Singh added.

“We definitely depend a lot on direct investments, and these investors play a crucial role. We hope [the Centre] can suggest minimum taxation costs for this segment to attract more investors,” said Rohit Jagasia, founder and CEO of Revenant Esports. “The multi-sport event tag adds value to the credibility of our new-age sports, i.e., esports like any other mainstream sport played in our country, and we hope the prize pool winnings of our esports athletes should be exempted from income tax just like any other sportsperson.”

Rohit Jagasia
Rohit Jagasia

 

“We are hoping for Internet and broadband services to be made cheaper and more accessible,” said Alpha Zegus founder and director Rohit Agarwal. “The greater majority of the Indian gaming audience is from Tier 2 and Tier 3 towns, and a slash in internet pricing would encourage more young adults to take up gaming.”

Rohit Agarwal
Rohit Agarwal

 

With less than 24 hours left for the Union Budget session to begin, the real money online gaming industry has its hopes pinned for some positive tax breaks.

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