The goal is to enable a more investor-friendly environment and better tax compliance. The minister expressed confidence that the online gaming sector would attract foreign investment once the discussions on taxation and regulation are finalized. These discussions are taking place at the ministerial level in the OS1 Council, anchored by Sitharaman and comprising finance ministers of states.

The Union Finance Minister of India, Nirmala Sitharaman, has recently disclosed that the GST Council is in active discussion over the taxation policies surrounding online gaming

The COVID-19 lockdown led to a surge in online gaming users in India. According to a recent report, the sector’s revenue is expected to rise from Rs 13,600 crore in 2021 to Rs 28,000 crore by 2024-25. With virtual reality dominating many aspects of our lives, gaming is no exception. Owing to the pandemic, not only adults but also playgrounds for kids have shifted to the screens. The online gaming industry in India has seen exponential growth in terms of both revenue and usage. It is anticipated that the online gaming industry would grow at a compounded annual growth rate of 22% and is expected to become a $2 billion industry by the end of 2023.

There are various models through which the online gaming industry is functioning. The key ones include the gaming platform charges. These charges take fees or enrollment fees from the players for the usage of online gaming platforms. In such cases, the platform may or may not allow gaming through monetary methods. In case players play games with monetary amounts, there is generally a prize money pool, which is nothing but a pool of all monetary contributions. This prize money is later on released to the winner of the game after deducting a commission of the platform.

However, in case of non-monetary games, only rake fee is charged from players for facilitating the game. The gaming platform or opp does not charge any rake fees to the player. However, the player may have to pay for any additional features such as unlocking the next level, buying extra life, performance boosters, etc.

Despite being a rapidly growing industry, the taxation of the online gaming industry and the services provided is still at its infant stages. The issue of levying GST on online games has been unresolved for almost two years, with several states advocating for a lower tax rate on skill-based games. They contend that games of skill should not be treated similarly to games of chance. The GST Council is expected to make a final decision on the taxation of online gaming at its upcoming meeting, likely to be held this month or in June.

Last month, the Ministry of Electronics and IT issued regulations for the online gaming industry that explicitly prohibit any games involving betting or wagering. The online gaming industry may adopt a self-regulation model and initially establish three self-regulatory organizations (ROS) that approve games operating in compliance with regulations. The industry is hopeful that the discussions on taxation and regulation will lead to a more investor-friendly environment and better tax compliance, thus attracting foreign investment in gaming companies.

-Navneet Shukla