India’s government says it will impose a 28 percent tax on funds that online gaming companies collect from their customers in a setback to the $1.5bn industry.
Gaming apps are often endorsed by sporting heroes in India, where cricket is a national passion, but concerns have mounted over possible addiction and financial losses among the gamers.
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The sector has been growing at an annual compounded rate of 28 percent to 30 percent and has also drawn international investors. United States investment firm Tiger Global has backed Indian gaming start-up Dream11, the lead sponsor of India’s national cricket team.
On Tuesday, Indian Finance Minister Nirmala Sitharaman, who chairs the goods and services tax council, made up of state finance ministers, said the decision to tax online gaming was reached after extensive discussions.
Industry executives said they may have to pass on the additional costs to their customers by raising the prices of games.
“The implementation of a 28 percent tax rate will bring significant challenges to the gaming industry. This higher tax burden will impact companies’ cash flows,” said Aaditya Shah, chief operating officer at the gaming app IndiaPlays.
Roland Landers, CEO of The All India Gaming Federation, said the decision was “unconstitutional [and] irrational”.
The proposal “will bring game of skill at par with wagering contracts, which are in the nature of gambling and betting”, said Kishore Kumar, indirect tax lead at Taxmann.
In fantasy cricket games on Dream11, users create their teams by paying as little as 8 rupees (10 US cents) with a total prize pool of 1.2 million rupees ($14,565).
Until now, the companies paid a small tax on the fees they charged for offering real money games. The change announced on Tuesday will impose a 28 percent tax on the entire amount collected from players in every game.
The revenue of fantasy gaming platforms during the popular Indian Premier League cricket matches rose this season, which ended on May 29, by 24 percent from last year to more than $342m with over 61 million users participating, Redseer consultancy said this month.