Stiff tax on gross revenue spooks online gaming cos
NEW DELHI : The Goods and Services Tax (GST) Council on Tuesday decided to tax online gaming companies at 28% of their gross revenue, or full face-value of transactions and entry fees paid by gamers, disappointing an industry that has lobbied for months to be taxed on its profit rather than revenue. Online gaming firms have so far paid 18% GST on their net profit. Alongside the new tax regime, Union finance minister Nirmala Sitharaman said at a press conference after the GST Council’s 50th meet that online gaming services “are not actionable claims".
The taxation decision could deal a blow to online gaming companies. Industry regulators and stakeholders expressed shock, saying the tax risks making online gaming businesses unviable in India. “Most online gaming ventures in the country, including the ones that have scaled up, do not have an operating margin of more than 7-10%.
Imposing a tax liability of 28% on total revenue would leave them with a tax quantum of potentially 3x of what they earn, and exponentially higher than the tax that they currently pay. This is practically impossible for the industry to pay," said a senior policy advisor to online gaming companies on condition of anonymity. The advisor added while the fine print is yet to be scrutinized, it is likely that the verdict will be challenged in court.
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