Saturday, July 29, 2023

Over 120 Online Skill Gaming Companies Seek Distinction From Fantasy Sports In GST

Over 120 online Casual Skill Gaming Companies wrote to the Honorable Ministry of Finance, and all GST Council Members seeking distinction on tax treatment from Fantasy Sports citing fundamental differences in business models and how they generate revenues. The industry highlights that Fantasy Sports, with guaranteed prize pools, are taxed differently from Online Skill Gaming Globally. Moreover, the consumption patterns of Online Skill Gaming differ markedly from Fantasy Sports and Lotteries.  

The Casual Gaming category, even when played with money, is starkly different from Fantasy Sports or Large Tournament (Lotteries) payouts. Quick Casual Games have a very different business model, consumption pattern, social relevance, as well as unit economics when compared with Large Payout Tournaments (such as Fantasy). Even several marquee research experts, such as KPMG, Redseer, etc., classify Fantasy Sports as a separate category within the real money gaming industry. In Online Skill Gaming, players engage in live matches based on their skills in the games such as First Person Shooter Games, Card Games Carrom, 8 Ball Pool, Chess, etc., playing against each other in quick succession. However, in Fantasy Sports, it differs with a large guaranteed prize pool that users participate in by way of teams. 

The gaming companies with a combined user base of over 400 million users, urged to not be clubbed with games of chance in their submission. They also highlight in this representation that GST on Deposits would result in closure of all continuous game formats that have very weak price elasticity as up to 75% of the deposit money is withdrawn back by the user in a way of winnings. The gaming companies also confirmed submitting this information to the Ministry of Finance for their consideration.  

The representation that was made by companies that represent Esports, Card Games, Casual Games claimed that in the case of Fantasy Sports, players don't play live against each other, but rather in a Tournament Model where even if platforms are asked to pay GST @ 28% on Full Face Value, the fundamental proposition will not change. (Small Entry Fee and Large Life-changing Winnings). 

Users of online skill gaming will move to offshore platforms for entertainment as they will not have any winnings left due to high taxation. This will lead to the shutdown of more than 120 online skill gaming companies. However, for Fantasy Sports, the hike in tax does not affect the winnings, and hence users will continue to play and the Fantasy Operators will survive on GST on Deposits. 

Online Gaming companies also cited examples from other major jurisdictions where Online Skill Gaming is protected and taxed differently from Fantasy Sports.

The proposed 28% GST rate on the Full value or deposit poses a severe threat to the online skill gaming industry's survival, particularly to startups currently in the research and IP generation phase. Many of these companies are incurring losses, and the new GST structure could lead to their immediate collapse. 

The GST Council is requested to look into the distinction in the business model of the thriving Casual Gaming segment even if played for a small entry fee, which has the largest user base in the country and pays 50% of the Rs. 2,000 annual GST paid by the Online Gaming sector.  

The decision to charge 28% GST on Full value or deposit is threatening legitimate activity of online games of skill played with a monetization model of entry fee and playing for winnings. To mitigate the potential repercussions and preserve the thriving Online Skill Gaming industry, industry representatives are seeking urgent discussions with the GST Council to advocate for a more sustainable tax structure that acknowledges the unique characteristics and potential of the sector. 

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