India Introduces 28% Tax on Online Gaming Revenue

The Indian government has announced a new 28 percent tax on the revenue generated by online gaming companies from their users. This move is set to impact the rapidly growing $1.5 billion online gaming industry in India, known for its strong engagement and the involvement of international investors.

The decision, announced by Indian Finance Minister Nirmala Sitharaman, who heads the goods and services tax council, comes amidst concerns about addiction and financial risks associated with online gaming. This sector, endorsed by popular sports figures, especially in cricket, has been expanding at an annual rate of 28 to 30 percent.

Key players in the industry, including U.S. investment firm Tiger Global, have shown interest and invested in Indian gaming startups such as Dream11, a major sponsor of India’s national cricket team.

The implementation of the tax will likely lead to increased costs for consumers, as gaming companies may raise game prices to offset the additional tax burden. Aaditya Shah, COO of the gaming app IndiaPlays, expressed concerns about the significant challenges and impact on cash flows due to the higher tax rate.

Roland Landers, CEO of The All India Gaming Federation, criticized the decision, calling it “unconstitutional and irrational.” He argued that this equates skill-based gaming with wagering contracts, typically associated with gambling and betting.

The taxation structure changes the previous model where companies were taxed on the fees for real money games. Now, the 28 percent tax will be applied to the total amount collected from players in every game.

This change is particularly significant for fantasy gaming platforms like Dream11, where users can participate with minimal entry fees. For instance, in fantasy cricket games on Dream11, users can create their own teams for as little as 8 rupees (10 US cents), contributing to a total prize pool of 1.2 million rupees ($14,565).

The revenue from fantasy gaming platforms has seen a considerable rise, especially during events like the Indian Premier League cricket matches. According to Redseer consultancy, the revenue increased by 24 percent this season, ending May 29, to over $342 million with more than 61 million users participating.

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