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Despite the massive growth in the “online gaming” sector in India, the latest changes in the taxation structure may make it difficult for gaming companies to survive the next two years of economic turmoil. This word of caution comes from Roland Landers, CEO of All India Gaming Federation – a 12-years old industry body.

Speaking to News18 Tech, Landers explained, “There are 60 years of judicial backing for online games. In India, the market is divided into games of skill and games of chance. Online gaming itself is very large and consists of several gaming formats whose revenue streams differ based on the: Forms of games (online) – Free or advertising-driven revenue; People paying to participate and in-app purchases for games.

“The growth (of online gaming) has been catapulted by the boost for Digital India, with the push for digital payments, and the explosion of smartphone users. But out of the 12, we have seen most of the growth in the last 7 years,” he said.

But this growth now faces uncertain times because of the planned changes with taxes on online games, which could push Indians towards offshore gaming companies.

Foreign Threat To India’s Gaming Boom

“There is a grey market in the online gaming space as well, which consists of people (brands) who are off-shore. Most of the companies are based in India, but some are based out of different countries (islands) and push their services here in the garb of the game of skills,” he explained.

“They do not pay taxes, and their major concern is regarding the lack of self-regulatory measures that our members adhere to, they don’t do that. So they have the liberty to do whatever they want.” And this is where the AIGF wants the Centre to intervene and take charge of matters, as the regime risks losing millions in tax revenues because of these offshore companies.

Action has to be taken by the government at a higher level since gaming is a state subject. “As AIGF, we have been telling the government this sector needs central oversight because states are geography and each state has different interpretations of the law.

Investor Sentiments Need Nurturing

AIGF realises the potential of the industry, which according to a recent report from BCG and Sequoia is pegged to be a $5 billion market opportunity by 2025 which is less than three years now. But lack of oversight and regulations have put this sector in a spot of bother, which can easily deter investors.

“No business can grow when there is uncertainty. The ecosystem is made of investors, gamers and developers and such developments are not encouraging for the industry. We have sought a central oversight. Online gaming is a $2 billion industry, grown consistently in the past 5 years, generating jobs, and creating jobs. So nurturing the segment is the need of the hour, and Landers is resolute in his efforts to make this a reality.

Online Gaming – States Need Centre’s Support

According to the Supreme Court, the game of skill is legitimate, while the game of chance, which includes betting and gambling, can be regulated by the states. You must have heard stories where online games are banned in one state while operating in another.

“Offshore guys are using the confusion around the skill and chance loophole to their advantage. The lack of oversight on these companies helps them tweak their model based on what allows them to run their business in the country,” he explains.

Lander is adamant that states should have powers but to an extent, while the centre has to take control of operations when it comes to external entities involved in the system.

Online Games Taxation – A Complex Story

But it is not just the offshore companies and Landers and Co that have to battle in the country. The government sees the gaming sector as a golden goose and their recent assessment of taxes on online games could make business matters worse for the industry.

The government is planning for a 28 per cent tax on all forms of online games. But the ruling is being planned for the entire money that a consumer spends. Taking a simpler route to explain this, you have players A and D playing and putting Rs 100 in the game. The gaming platform takes 10 per cent from both players, which comes to Rs 20 (10 + 10). Now, the government wants to tax the Rs 20 and add another 28 per cent tax on the full amount which is Rs 200 from both players.

“Companies can pay from Rs 20 ( what they earn as commission) – but 28 per cent tax on Rs 200 means the players will end up paying around Rs 70 to the platform. Players want to make a decent return for the money they spend but these tax slabs will discourage them to play on India-based platforms and take them to offshore platforms that don’t charge any taxes,” Landers and Dhruv from his team summarise the problem at hand.

“What they don’t understand is that companies can’t pay more tax than their own revenue. We have told the govt that increased taxes will not help to run the sector. Globally, the rate of tax is always applied to the platform fee, and we have been asking this from the govt as well. That would be the right way to do it and let the business continue,” Landers shares his insight.

What India Spends On Gaming

India has traditionally been a price-conscious market and the gamer crowd is no different. According to the BCG report, most gamers spend around Rs 50 but they play more frequently. India is home to around 400 million mobile gamers, which is the bulk of the online gaming community. The global gaming revenue is close to $200 billion in countries like China and US while India’s valuation of $2 billion is barely scratching the surface.

Now, if the industry has to increase its per-consumer spending or ARPU, the new tax regime has to be flexible in its approach. “Our members have told us, even the big ones, that if GST goes to 28 per cent that too on the whole amount (Rs 200), the increase will be 1100 per cent, which will not be sustainable for the businesses and they will eventually close down in the next one to two years.

He concludes the discussion by suggesting that if the taxes are done correctly, gamers can play 3 games for Rs 100. And if the changes are not rational, only one game can be played for the same amount. “If he loses more for the same money, he will stop playing. These gamers will get lured to the offshore chaps, who don’t have any taxes and everyone loses, he adds.

But Lander is hopeful that the government will make the right call for the sake of the industry. “If taxes are done rationally, it will be a big boost to the industry – also curbing the grey market is vital for the betterment of the sector. We want central rules which can aid in unlocking the potential of the online gaming industry in India,”

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