This comes amid widespread concerns that the GST Council – its apex decision making body – is considering tax on the latter.
Over the past few years, there has been an ongoing debate on whether taxes should be applicable on the total transaction value or the net commissions (revenues) or what is called GGR that accrue to these gaming firms.
The investors sent a joint representation to finance minister Nirmala Sitharaman on July 10. ET has reviewed a copy of the letter.
Navroz Udwadia, the cofounder of Alpha Wave Global; Rajan Anandan, managing director, Sequoia Capital India; Dan Sundheim, founder, D1 Capital Partners; Ashish Gulati, partner, Malabar Investment Advisors; Vani Kola, managing director, Kalaari Capital; John S Salter, partner, Raine Group, and Ravi Mehta, MD, Steadview Capital Management, were among those who co-signed the letter.
These investors have backed gaming unicorns like Dream Sports, Mobile Premier League, and Games24X7. Currently, the total Indian gaming portfolio is valued at over $10 billion.
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They said that revising the tax structure to 28% on total deposits, or contest entry amount, instead of gross gaming revenue, or platform fees, could make the business model of legitimate operators unviable and lead to a proliferation of illegal operators.
“A move away from gross gaming revenue and toward contest entry amount or deposits will be unfortunate and could cut short the growth path and lead to value destruction of this sector through significant reduction of investments, startups, and revenue to the exchequer,” the investors wrote. “Such a scenario could lead to an investment drought, crippling Indian gaming companies’ expansion, research, and development plans.”
Currently, an 18% GST is levied on gross gaming revenue.
According to an industry source who did not wish to be named, a meeting has been scheduled on July 23 with the Group of Ministers and industry stakeholders like the e-Gaming Federation, the Federation of Indian Fantasy Sports, and the All India Gaming Federation to finalise the recommendation before a final report is submitted to the GST Council, which is headed by Sitharaman. The final recommendations on tax slabs and structures will be decided in the meeting, the source added.
“As investors in global gaming companies, our experience suggests that both in Europe and the Americas where most regulators have realised that on the internet where there are no national borders, citizens of a country are best served by a regulatory regime that promotes a local gaming industry with constructive tax policy and a regulatory structure to protect users with focus on fairness and responsibility ..,” these investors said in the letter.
ET reported on May 19 that the online gaming industry might attract a flat GST rate of 28%. Industry executives have called the proposed 28% across-the-board levy ‘very steep’, which would make the gaming industry unviable. They have sought for a continuation of the 18% rate on games that do not involve gambling.
According to the letter, the Indian online skill gaming startups currently contribute more than Rs 2,200 crore in GST, which is projected to increase to Rs 6,000 crore by 2025.
Indian online skill gaming startups are currently valued at $20 billion and are expected to grow to $40 billion by 2025 with the industry’s current annual revenues at $2 billion and projected to grow to $5.4 billion in the next three years, the collective of investors wrote to the FM.
Separately, industry associations like E-Gaming Federation (EGF), All India Gaming Federation (AIGF) and Federation of Indian Fantasy Sports (FIFS) have urged the government to not raise the GST to 28% on online gaming.
In a joint statement, the three industry bodies said that they are worried the tax may be levied on total pool (prize money pooled plus the platform commission) and not on GGR.
The former, if implemented, they said, will mean the demise of the online skill gaming industry in India, they had said in a statement issued on June 28.
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