Peak XV, Tiger Global, others urge PM Modi to review India’s online gaming tax

Tiger Global, DST Global, Peak XV, Steadview Capital, and Kotak Private Equity are among global and Indian investors who have asked India’s Prime Minister Narendra Modi to reconsider the recently announced taxation on online gaming.

The Goods and Services Tax Council, which comprises top federal and state finance ministers, said earlier this month that it had agreed to levy a 28% indirect tax on online gaming, casinos and horse racing. The council said there should be no distinction between “game of skill” and “game of chance,” closing a loophole that has allowed fantasy sports companies to justify their offerings as skill-based.

“The decision of the 50th GST Council has the unintended consequence of equating the constitutionally protected legitimate online skill gaming industry with gambling, betting and other “games of chance,” a group of 30 investors wrote in a letter to Narendra Modi, the Prime Minister of India, on Friday.

“We invested in this sector with the vision to make India the gaming capital of the world, which would help in generating, among other things, high-skilled jobs, billions in foreign capital and make the country a net exporter of innovation in gaming and allied areas such as animation, artificial intelligence and visual effects,” said the letter, titled “urgent prayer.”

Online gaming is one of the fastest growing consumer internet businesses in India. Fantasy sports startups — including Dream Sports, backed by Tiger Global and Alpha Wave Global and valued at over $8 billion, and Sequoia India-backed Mobile Premier League — have altogether raised billions as a generation of internet users build a habit of making bets on real-world sporting events in hopes to make money.

Through the letter, a copy of which was reviewed by TechCrunch, the investors have urged New Delhi to examine the following aspects before implementation of the taxation rule:

a. If “full value of bets” is understood in a manner where GST is levied on every contest played every time with fully taxed winnings, the GST burden will increase by 1,100% and on account of taxation of redeployed player winnings, the same money will get taxed repeatedly resulting in a scenario where over 50-70%% of every rupee will go towards GST , thereby making the online real money skill gaming business model unviable. This will lead to write off of investments made and would hurt the investor confidence.

b. If “full value of bets” for the purpose of levy of GST on online gaming is the full deposit value i.e. deposits made by users and not taxed again if the winnings are redeployed to play a game (at par with casinos), there will be a 350% increase in GST burden. This will result in the closure of most gaming startups and will require major restructuring across the industry to survive. Importantly, as deposits for online games are digital and made via authorised payment channels, it would allow GST authorities to track and verify all GSTfilings and remove any scope for manipulation by unscrupulous actors.

c. If 28% GST is to be levied on the Gross Gaming Revenue (GGR)/Platform fees, there would be a 55% increase in GST quantum. This would ensure that the Indian online gaming operators are able to survive and are able to be a key contributor to the Indian economy. In addition, such a suggestion of levying GST on GGR would be in line with internationally accepted and proven practices.

More to follow.

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