What are the effects of newly proposed 28% GST Rate on Fantasy Sports & How it Could Prove To Be A Disaster for Indian Esports

19-Jul-2022

The Indian fantasy sports sector has received ground-shattering news. The news says, the tax on fantasy sports games would be ramped up by 10 %, which means, the GST rate would reach a huge figure of 28%. The decision has been taken by a group of state finance ministers (GoM).

According to the GoM, considering the entry fee paid by the players and the hefty rewards that they receive, it is necessary to tax these activities at 28%. The fantasy sports fraternity thinks this is injustice as the GoM has not considered the point of difference between games of skill and games of chance.

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Taking into account the disagreement about this decision, the GoM has not yet made this decision a completely official one. Karnataka Chief Minister BS Bommai said that the decision has been deferred because there are issues that need to be discussed. GoM is going to submit the report regarding this issue within the next few days.

The reaction of the Indian Gaming Industry

The Indian Gaming companies and Fantasy Sports Industry are shocked by the hike in the tax by 10%. More than the hike, the industry is disturbed by the fact that GoM has put these skill-based games in the same category as chance and luck-based games like betting, and gambling.

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It is observed that opinions regarding this issue are emphasizing the same aspect- the hindrance to the growth of the Indian Gaming Industry. The experts are saying if the government doesn’t have a separate perspective on skill-based and luck-based games, then the gaming industry might undergo a plunge in the upcoming years.

The reaction by the people from Fantasy Sports Industry

Amrit Kiran Singh, the adviser to the All India Gaming Federation (AIGF), said

“Applying GST on online sports will lead to an almost 900% increase in taxes, which will kill the emerging gaming industry,”

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Dinker Vashisht, vice-president, corporate and regulatory affairs, Games24x7, said

“Not only will such a decision (to levy GST on total pool instead of GGR) be catastrophic for the industry, it is also against the principles of fair taxation as well as GST rules,”

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“Increasing the GST on sports gaming online from 18% to 28% will have far bigger implications than just an increase in tax rate by 10%. The overall increase in tax liability would be much much higher. And more tax liability can have a reverse impact on the overall tax collection for the government. You know what I mean” said Peeyush Sharma, one of India’s most-followed Fantasy Sports Experts.

Arjun Kumar, a Fantasy Cricket Expert, said

“There needs to be a difference between the tax rates on the Games of Skill and the Games of Chance. This move might hurt the growth of this flourishing sector. Hence the government should reconsider its decision and bring a detached and independent tax slab for Fantasy Sports”

Kunal Pawar who is an expert in this industry explains how the decision could affect the platform and the players. The sector is highly competitive, and the increase in the tax rate would make matters worse. It would severely impact both – the platforms as well as the users.

A fantasy sports enthusiast Kartik Vyas supports the decision saying, “I think it can prove to be a great move as the government can use the money for the development of the sports ecosystem in India”.

Online Gaming Industry of India

Image Source- The wrap

The sports gaming online industry has experienced tremendous growth in recent years. The cheaper internet prices, easy availability of smartphones, lockdowns plus the opportunity to earn money by analyzing sports, this has become the favorite activity for many people. The reports say, the Indian online gaming industry is of Rs 30,000 crore+ and the growth is exponential. In FY21, this sector paid ₹1,500 crores in taxes, and the amount is predicted to jump to ₹15,000 crores between FY20–FY24.

Image Source- ANI News

The industry has already experienced a 28% growth from FY20 to FY21. The users have surged from 360 million in 2020 to 390 million in 2021, which is around 8%.

The online gamers in the country are forecasted to reach 500 million by 2025, making it the fourth-largest sector of the Indian media and entertainment category. It is estimated that it would have a 25-30 percent annual growth and also generate over one and a half lakh new jobs annually.

GST in Sports – Drawbacks of the 28% Tax Rate recommendation

As the dissimilarities between the skill-based and luck-based games haven’t been considered, people think it’s an attempt to unofficially connect skill-based games to gambling and betting. According to the Honorable Supreme Court, if the games need skills then they are legal. Thus the online gaming and fantasy sports industry falls in the category of games involving skills and hence are legal.

How The Newly Recommended 28% GST Rate Could Be A Disaster for Indian fantasy sports

Image Source- Zee Business

GST council is targeting the amount that gets transacted through these apps and platforms along with the incomes of those platforms. The tax burden that could be caused due to this would be catastrophic.
With ever multiplying tax, the industry might undergo a complete stoppage in growth. Thus the platforms will reduce the winning prices and people would not be too happy with that.
This industry will provide huge job opportunities, but if the proposed 28% taxation comes into existence, we might see a larger chunk of our workforce going abroad to seek jobs.
The more the tax, the more will be the hike in the platforms’ commission, which leaves users with the lower and lower winning amount.
This might lead users to go to gambling and betting, which is not at all appropriate to build a good community.

Conclusion

Indian Government, first and foremost should not mix the online gaming industry and fantasy sports industry with gambling and betting. As there are skills required to be successful in gaming and fantasy sports, it is completely unfair to keep these in the same pool of chance and luck-based games. The gaming and fantasy sports industry has already given a glimpse of the future, this is the industry that could boost the Indian economy. Thus a Central Government has to find a way to balance things considering the massive potential of this growing sector.

Kreedon