In an interaction with The New Indian Express, Dr Deepali Pant Joshi, former executive director, Reserve Bank of India (RBI), discusses the online gaming sector and excessive taxation.
Q: The GST council recommendations have invited concerns from most stakeholders as it can be detrimental to the gaming industry. What is your view on this?
A: The change in the GST rules is a bitter medicine - as it is a double whammy. It is going to increase the tax payouts for the companies and the cost of playing games for the users. Many newer companies may struggle to operate in this new regime while the big ones may find it a tad bit easier to adapt.
Sadly, regulation is never a please all but always a blunt instrument. For a regulator, when the party gets going, is the right time to take the punch bowl away - and that's what has happened.
That said, the hike in the GST rate from 18% to 28%, in my opinion, is completely justified. After all, many industries including entertainment, which is what I believe online gaming companies also offer, pay GST at 28%. The problem does not lie in the 28% uniform levy of GST - the companies will bear it. It is the change in value from platform fee or commission to the full value of every game which seems unfair.
Levying GST on every game means taxing the online gaming industry worse than even the casinos where the GST is being levied on the deposits. The implication of levying tax on every game/ on winnings effectively bumps up cost/ taxes which may likely increase effectively to 50-70%. This would not be a viable option for the industry or the gamers and this is an issue that needs to be addressed.
Q: One of the likely outcomes of increased taxes may lead to a surge in unlicensed operators in a bid to evade tax liability. Is this fear justified among licensed operators?
A: This is something that is already happening. Earlier law commission reports and various recent media reports also indicate that the grey market for online gambling and betting is flourishing, which is causing a loss to government tax revenues and also putting gamers at risk. The government levying a tax of 28% GST on the face value will only lead to an increase in such platforms driving gamers to unlicensed platforms. Excessive taxation may also push gaming operators to tax havens and the government will end up losing a lot of revenue. We should not throw the baby out with the bathwater. Surely we don't want to push gaming companies to offshore locations and lose revenue.
Q: The council increased taxes on online gaming on moral and ethical grounds. What is your opinion on this? Do you think it's addictive and is bad for youth?
A: What is addictive or non-addictive is a moot point. Anything can be addictive including exercising. Prohibitive taxes or blanket bans don't work. If you make online gaming prohibitively expensive, you encourage illegal platforms to thrive. Sunlight is the best disinfectant - regulation always helps both industry and consumers and also earns revenue for the government.
Q: What is your view of the online gaming industry as a whole? Many are claiming that the government's decision will lead to job losses in the industry and also impact investment in the industry. Your view on this?
A: The online gaming sector in India has grown exponentially over the past few years. India is home to over 900 gaming companies and over-committed and active 400 million online gamers. In addition, the industry has already attracted $2.5 bn in investments and has a great potential for employment and export. It has also been estimated to have employed around 100,000 people in 2022. The industry is definitely a burgeoning one with immense potential that can be productively tapped into. The opportunity anticipated is way larger than the risks.
I do believe that the industry should be regulated in the interest of the industry and the player but by the industry player. In a competitive industry - that's market-driven - the industry knows the best about the key concerns that need to be addressed. As far as regulation is concerned, the wearer of the shoe knows where it pinches the most. A self-regulatory approach works the best for ever-evolving and innovating sectors like online gaming.