Why Is The Government Going After Real Money Games?

The online gaming industry was struck by a seismic shock when the GST Council imposed a hefty 28% tax on it. Honestly, it was no less than a thunderbolt for the startups associated with real money games. There was a time when we considered the online real money games industry, as the ‘sunrise sector’ of India. And now it is on the verge of getting wiped out.

It looks like the unfortunate fate of real-money online gaming companies has begun. They are grappling with layoffs and shutting down their operations. Now the question is – Why Indian government is going after real money games?

Well, the answer lies in the whole concept of taxation! Sounds complicated? Well, don’t worry. Stick to this write up and you will get to know everything about it.

Here we go!

(A) The Story So Far

On July 11, the online gaming world was hit hard. Because the GST Council decided to slap a whopping 28% tax on its full-face value.

During a meeting held on August 2, the council made it clear that taxes would apply to the money players deposit to join a game. This prevents double taxation when they use their winnings to continue playing. 

Furthermore, the government plans to modify Schedule 3 of the GST Act to include online gaming in the category of actionable claims. Up until now, only lottery, betting, and gambling fell into this category, while online gaming did not.

As a result, the government has essentially grouped online real-money gaming with gambling, despite efforts by the industry over the past few years to distinguish between skill-based and chance-based games.

The 28% GST on real money games had a drastic impact on the gaming industry. The latest news is on the real money gaming app “Fantok” which announced the temporary suspension of its operations. Earlier, the gaming unicorn MPL (Mobile Premier League) laid off over 350 employees. It counted for nearly half of its workforce. The list goes on and on as the industry is going through a rough patch.

(B) Why is the Government going after real money games?

Real-money gaming has been under the spotlight lately for several reasons. 

The following context describes various reasons for why GOI is going after real money games-

(B.1) Addiction & Tragic Consequences

The shadow cast by real-money gaming looms large due to the detrimental impact it can have on individuals. The foremost concern is addiction, which has sadly led to financial ruin and even tragic suicides. These distressing events have thrust the industry into the spotlight. 

The Ministry of Electronics and Information Technology has expressed the need for these amendments. Especially, to curb the devastating influence of online gaming, especially on vulnerable groups such as children. And you know very well, that we can never let the children become vulnerable to any type of addiction that can ruin them!

(B.2) Violating Advertising Guidelines: A Growing Menace in FY23

In the fiscal year 2022-23, the real-money gaming sector emerged as a major violator of advertising guidelines. According to the Advertising Standards Council of India (ASCI), it led the pack in violating advertising norms. Digital advertisements, in particular, were the least compliant with the guidelines. 

The report highlighted that the real-money gaming sector surpassed the education sector in violating regulations. Shockingly, a staggering 92% of gaming advertisements in FY23 failed to inform consumers about the potential risks of financial loss and addiction. 

This non-compliance prompted ASCI to review a substantial number of ads across various media channels, with gaming ads accounting for 15% of the total. See, if you violate the guidelines mentioned by the government, then you are bound to face harsh consequences.

Moreover, the sector earned the dubious distinction of being the least responsive, with only 50% of ads being voluntarily modified after being flagged by ASCI.

(B.3) Recurring Offenses: A Troubling Pattern

The real-money gaming sector is no stranger to recurring offenses. In FY22, it was one of the top categories in terms of advertisement complaints received by ASCI. Notably, fantasy gaming contributed significantly to these complaints, signifying a persistent issue within the industry.

(B.4) Tax Evasion: A Billion-Dollar Scandal

December 2022 brought shocking revelations of alleged GST evasion by gaming companies. The Central Board of Indirect Taxes and Customs (CBIC) launched investigations into these companies, suspecting an evasion of nearly INR 23,000 Crores. Authorities are poised to issue cumulative tax demands of up to ₹1.5 trillion from online gaming companies for alleged underpayments spanning several years. 

For instance, the Directorate General of GST Intelligence (DGGI) reportedly sent notices amounting to ₹21,000 Crores to Play Games 24X7, the operator of RummyCircle and My11Circle. Even fantasy e-sports giant Dream11 received a notice for ₹28,000 Crores, underscoring the gravity of the situation. The tax evasion scandal has added a layer of complexity to the woes faced by the real-money gaming industry.

Seeing the above faults of the real money games sectors, it became quite obvious why the government has to intervene. Doesn’t it look like the gaming industry hit the axe to its own feet? Well, I mean that the gaming companies brought the unfortunate fate on their own!

(C) Taxation on Real Money Games: What it means for you?

As you have read in the introductory paragraph, our GST council made a big decision. They said that a 28% tax would be charged on the full amount of money you bet when you play games online. Before this, only 18% GST was applied to the fee you paid to use the gaming platform.

Let’s break it down with an example: If you bet INR 100, now you’d have to pay INR 28 in taxes under the new rule. But in the old system, you’d only pay INR 18 on the platform fee for the same amount. The platform fee can be anywhere from 5% to 20%. Even if it’s 20%, the total GST would only be INR 3.6 (which is 18% of INR 20). So, the new tax rules mean a huge 1,000% increase in GST!

On top of this, new rules say that players have to pay a 30% TDS (Tax Deducted at Source) on the money they win. Your net winnings are calculated by taking the total deposits you made during the year and the balance you had at the start of the year, then subtracting it from the money you withdraw during the year. This is causing worry for startups because they fear users might just leave these gaming platforms altogether.

(C.1) What is the Government’s perspective on Real Money Games Taxation?

As per our finance minister, they have no intention to harm the online gaming industry. However, they also can’t make the GST rates the same or lower than what’s applied to essential goods. So, while it might be a bit tough for gamers, the government has its reasons for these changes.

Note: If you want to know the fundamentals of GST, then you can look into the article-“Impact of GST on Indian Economy.”

(D) Impact of 28% GST on Online Real Money Games

Here are the notable impacts of the newly imposed 28% GST on Online Real Money games-

(D.1) Startups Feel the Pinch (Going through Hardship)

The government’s decision to impose a 28% GST on online real money games is causing a ripple effect in the gaming industry. Several startups are already feeling the heat, resulting in layoffs and even business closures.

(D.2) Collective Impact

The layoffs collectively impacted more than 500 jobs. Some startups temporarily halted their services, while others shut down permanently, raising concerns about employee well-being.

(D.3) Future Uncertainty

Industry experts suggest that the road ahead is bumpy, especially for early-stage firms. The gaming sector could see more layoffs, shutdowns, and consolidations in 2023, continuing the trend from 2022.

(D.4) Financial Snapshot

While MPL and Hike Rush Gaming Universe reported losses in FY22, Spartan Poker showed a profit. Dream11 stands as the highest revenue-generating fantasy sports company in India. The following table describes the FY22 performance of various gaming companies

(D.5) Challenges Ahead

The 28% GST is expected to impact the growth of these companies in FY24, with Dream11 forecasting an 80% drop in EBITDA.

(D.6) Industry’s Dismay

Joy Bhattacharjya, Director General of the Federation of Indian Fantasy Sports, believes that most startups won’t survive the 28% GST, and customers may turn to foreign platforms for online gaming. Earlier, several gaming companies and investors appealed to the government to reconsider this tax decision.

The gaming industry faces an uncertain future as it grapples with the consequences of the new tax regime.

(E) How Real Money Game Startups are Tackling this?

Real money game startups are facing significant challenges due to the imposition of a 28% GST on their services. To tackle these challenges, they are employing various strategies-

(E.1) Cost Cutting Measures

Many startups are implementing cost-cutting measures to offset the increased tax burden. This may involve reducing operational expenses, renegotiating contracts, or streamlining their workforce. For example- Fantok, One World Nation (OWN).

(E.2) Rethinking Business Models

Startups are exploring alternative business models to adapt to the new tax regime. This could include adjusting pricing structures, introducing subscription-based models, or diversifying their offerings to include more skill-based games that are taxed at a lower rate.

(E.3) Lobbying and Advocacy

Some startups are actively engaging in lobbying efforts and advocacy to convince the government to reconsider the 28% GST. They are part of industry associations and collaborate with other players to voice their concerns and seek policy changes.

(E.4) Diversification

Startups are looking into diversifying their services or expanding into related sectors to mitigate the impact of the tax. This could involve venturing into other forms of online entertainment or exploring international markets.

(E.5) User Education

To maintain their user base, startups are educating their customers about the new tax implications and explaining how it affects them. Transparent communication can help in retaining users.

(E.6) Seeking Legal Recourse

In some cases, startups may consider legal action to challenge the GST imposition, especially if they believe it is unjust or unconstitutional.

(E.7) Collaboration

Startups may join forces or collaborate with larger players in the industry to share resources, mitigate losses, and collectively address regulatory challenges.

(E.8) Exploring International Markets

It’s time for startups to expand their operations internationally to reduce their dependency on the Indian market and diversify their revenue streams.

However, it is important to note that the specific strategies adopted may vary depending on the size and resources of the startup, as well as the nature of the business. The ultimate goal is to adapt to the new tax regime and maintain business sustainability in a challenging environment.

(F) Latest Government Guidelines on Online Gaming and Real Money Games

The Ministry of Electronics and Information Technology (MeitY) has introduced finalized rules for online gaming. These rules follow the initial draft regulations issued in January 2023. The objective is to enhance due diligence among online gaming and social media intermediaries, particularly regarding online games and the dissemination of false or misleading government-related information.

(F.1) Defining Online Games

The new rules define an ‘online game’ as “a game accessible to users via the internet through a computer resource or an intermediary.”

(F.2) Appointment of Self-Regulatory Organizations (SROs)

The government will appoint multiple self-regulatory organizations (SROs), consisting of industry representatives, educators, child experts, psychology experts, and more. Initially, three SROs will be designated.

(F.3) SRO Responsibilities

SROs will determine the permissibility of online games based on whether they involve wagering. Online real money games can be declared permissible by SROs if they do not involve betting on any outcome.

(F.4) Games Banned

The new rules prohibit games involving betting and wagering. Permissibility hinges on the presence of wagering. Real-money games that do not involve wagering are considered permissible. There is a long list of real money games that are banned. We will discuss them in the upcoming section.

(F.5) KYC Verification

The IT ministry has mandated KYC verification for online gamers participating in real money games.

(F.6) Fact-Checking in Online Games

MeitY will designate agencies to fact-check and address false or misleading information pertaining to government matters within online games.

(F.7) Industry Reaction

Industry leaders have welcomed the new rules, recognizing the differentiation between online gaming intermediaries and gambling. The rules are seen as a significant step toward realizing India’s potential as a global leader in gaming, fostering investor confidence, reducing state-level regulatory inconsistencies, and promoting a stable business environment.

(G) List of Real Money Games Banned in India

1. Betway – Live Sports Betting
2. MELBET
3. AndarBahar Poker
4. Silver Luck
5. Big Winner – Lucky Wheel
6. Betfair Live Line
7. Zodiac Casino
8. SuperDraft Sportsbook – Prizes
9. Betstamp – Sports Betting Hub
10. Live Blackjack (Blackjack 21: Live Casino game)
11. Onside Sports: Scores, Live Od
12. Block Online Gambling – Gamban
13. Teen Patti Lucky Gold
14. Fun88
15. Betindi
16. PokerStars: Texas Holdem Games
17. Live Baccarat
18. Jackpot City Casino
19. Spin Casino
20. Bambet
21. Spin for Cash!-Real Money Slot
22. Tivit Bet App
23. betM – Sports Betting Tool
24. Teen Patti Romio
25. Teen Patti Kash
26. Casumo Online Games: Extended
27. Zet Casino
28. Casino Real Money: Win Cash
29. Play To Win: Win Real Money
30. Europa Casino
31. Casumo Casino
32. Slots Machines – Vegas Casino
33. DAFABET – 2022
34. Cricket: Sports Betting
35. Bet O Bet-Live Sports Betting
36. Sports Betting™ the Sportsbook
37. Match Book App
38. Casumo Slots
39. William Hill App
40. 3 Lucky Casino
41. 3patti Guide
42. SI – Betting tips
43. BetQL – Sports Betting Data
44. NEO.Bet App
45. Betvisa
46. Pure Win
47. Bet Analytix
48. Betobet
49. Blackjack Live
50. Lagai Khai Pro

(H) Rays of Hope for Real Money Games

(h.1) Appeal to Government

The All-India Gaming Federation (AIGF), which represents major skill gaming companies in India, has asked the finance ministry to delay the implementation of the 28% GST on online real money games. They’re suggesting that the new tax rules should wait until all states align their amendments with the GST scheme and until the Supreme Court makes a decision.

(H.2) Positive Investment News

On a brighter note, South Korean gaming company KRAFTON has committed to investing $150 million in India over the next two to three years. Also, Singapore-based startup Ampverse plans to establish a gaming studio in India and expand its local team. These developments show that there’s still optimism in the gaming industry.

(I) Final Thoughts on the Government’s Stance on Real Money Games

In the end, the government’s push to regulate real money games comes from a place of concern and responsibility. They want to make sure gaming is enjoyable and safe for everyone, especially for those who might be at risk. The decision to put a 28% tax on these games and keep a closer eye on them is about finding the right balance between fun and protecting people.

Various startups associated with real money games are storming their brain. Reason? To tackle the situation with innovative ideas. 

Let’s see what happens to the gaming industry after the implementation of 28% GST!

We’re truly grateful to you, our readers, for taking the time to explore this important topic with us. It’s a matter that touches the world of gaming and the people who love to play. Thank you for your interest and your precious time!