MM TAX CLUB

In an interview with The Indian Express, Malhotra said the potential size of the online gaming industry is around Rs 50,000-85,000 crore.

The online gaming industry is paying tax of only 2 per cent of the estimated turnover at present and by bringing in a uniform Goods and Services Tax (GST) rate of 28 per cent for online gaming, the government could earn ten times more than Rs 1,700 crore collected in the financial year 2022-23(FY23), Revenue Secretary Sanjay Malhotra said on Wednesday.

In an interview with The Indian Express, Malhotra said the potential size of the online gaming industry is around Rs 50,000-85,000 crore.

“Rs 1700 crore is the revenue that we got last year from online gaming in 2022-23, around Rs 300 crore from casinos in the two states and about Rs 80 crore from horse racing last year…the online gaming (industry) is paying only about 2 per cent, so you multiply it by 50. That becomes around Rs 85,000 crore (industry size)…(at 28 per cent GST) about ten times what we are getting,” Malhotra told The Indian Express. (Read the full interview here.)

He said that since the online gaming industry is paying 18 per cent on GGR (gross gaming revenue), it means a substantial loss of revenue if the same volumes continue. But, with the uniform 28 per cent rate, revenues are expected to go up by ten times of last year’s revenue, that is, additional earnings of over Rs 17,000 crore.

Stating that the clarification for taxation on online gaming, horse racing, and casinos was necessary in the interest of “principle of equity”, Malhotra said the taxation would be implemented either through payments by taxing those or by regulating such entities in case they fail to make tax payments.

“It is important that whatever taxation we have, taxation should follow the principle of equity. Whether we are able to tax it or not, of course, that is important. But more important is equity…your question relating as to whether and how we will tax it is a relevant question. But there are numerous ways that it can be done. It may not be standard methods. One is on payments, one can tax them. The other is that if they don’t pay those taxes, we can regulate them. We can prohibit them. They are not paying taxes which are due to us, then we can even regulate through MeitY (Ministry of Electronics and Information Technology). So, we’ll explore these possibilities,” he said.

For online gaming companies operating from outside India, Malhotra said the tax department could bring in a mechanism for tax collected at source (TCS) at the time of payment itself or the responsibility could be cast on the online gaming companies for payment of taxes, failing which it would get viewed as transgression of law and hence, could even attract penal action.

“Banks will have to be brought into the picture (for TCS). The responsibility can be cast even on those online gaming companies to make payments. In case TCS has not been collected, then those gaming companies located abroad (will have to pay)…so they collect it and give it to us.

“And if they fail to do so, they are transgressing the law. Then we are well within our rights to regulate them or suspend them till the time they open an Indian account or make payments to us. They can operate from outside but they have to make payments to us. That requirement is still there,” Malhotra said.

The GST Council, in its 50th meeting on Tuesday, decided to levy a uniform 28 per cent tax on full face value for online gaming, casinos and horse-racing. While the government has maintained that this decision is not intended to harm any industry, online gaming companies have raised concerns about the impact of this move on the industry, as it is likely to affect volumes and thus the viability of gaming companies.

Source