Could GST at 28% really kill an entire industry?

India’s booming gaming industry fears being wiped out by the decision to impose a 28% tax on every sale made to players.

The government has introduced the new rate of GSTGoods and Services Tax on the country’s 900-plus gaming start-ups, which until now had been paying just a small tax on the fee they charged for offering games.

New rules mean the 28% rate will apply to the full face value of a gaming transaction, meaning the entire amount paid by players will be liable for tax.

And it’s not just GST that is collected on sales that must be considered. Total tax on player winnings will now exceed 50% once platform commissions (of approximately $5 to $10) and income taxes of 30% are taken into account.

It poses a major threat to an industry that had enjoyed record growth in recent times. In the last five years, India’s gaming sector has achieved an annual compounded growth rate of 28%-30%.

With affordable smartphones and cheap mobile data widely available, more than $2.5 billion has been invested by overseas companies.

Sudipta Bhattacharjee, partner at corporate lawn firm Khaitan & Co, told the BBC the introduction of GST at 28% will “disincentivise players and is totally inconsistent with global standards”.

“The move has completely blindsided the industry. It will shake investor confidence and lead to a funding winter,” he added.

Indian Prime Minister Narendra Modi has previously highlighted the gaming industry as an area for India to be proud of and one in which many new jobs could be created as the country positioned itself at the forefront of global gaming.

But several industry figures agree with Mr Bhattacharjee that the latest developments will put off investors. Indeed, shares in Indian online gaming platforms and casinos have crashed since the GST Council’s decision.

Roland Landers, CEO of the All India Gaming Federation, said: “It is very unfortunate that when the government has been supporting the industry such a legally untenable decision has been taken.

“It will be catastrophic for the $1 trillion digital economy dream of the Prime Minister.”

Meanwhile, Soham Thacker, founder and CEO of eSports company GamerJi, suggested “they have killed the multi-billion dollar industry with a single stroke” and that many gaming companies may now look to relocate their operations away from India.

Gaming is exceptionally popular in India; in part because gambling – which is seen as a game of chance – is banned in many states, whereas gaming – a skill-based activity – is permitted.

The industry currently employs 50,000 people and was predicted to add another 350,000 jobs by 2028. However, the All India Gaming Federation believes GST at 28% will instead lead to thousands of roles being cut.

Finance Minister Nirmala Sitharaman said the GST Council, which is made up of federal and state ministers, said nobody wants to kill the gaming industry, adding: “But they can’t be encouraged to such an extent over essential goods and services.”

Siddhartha Iyer, a Supreme Court lawyer, has been fighting to ban online gaming and called GST a “step in the right direction”.

Explaining the reasoning behind the decision, he said: “Under the GST regime, the government has taken the view that [these games] are gambling and that is correct in my opinion because you are putting a wager on the performance of something not in your control.”

He expects the gaming industry and relevant associations to come together to launch a legal challenge to the GST rate once federal and state governments enact the changes into their tax laws, but the country’s revenue secretary has already ruled out a review and called the decision “unanimous”.