GST On Online Gambling: How It Impact the Income of Indian States?

In the last few years, online gaming and gambling have seen massive growth in India. The rise of this industry is driven by inexpensive data plans and increased smartphone penetration. 

To tap into this high-growth sector, the Central Board of Indirect Taxes and Customs (CBIC) has decided to impose a uniform Goods and Services Tax (GST) of 28% on online games of skill or chance.

That includes fantasy sports, rummy, online poker, betting games, etc. This came into effect on October 1, 2023, and that’s a 10% increase from what the online gaming sector has already been paying prior.

Significance of Online Gaming Revenues

As per a 2022 KPMG report, India’s online gaming sector was worth $2.6 billion in FY 2021-22 and will triple to reach $7 billion by FY26-27. An example is the United Kingdom and its UK Gambling Commission. 

The UKGC is the body that ensures all gambling companies in the UK are licensed and regulated. They also regulate how gambling is marketed in the UK. We can learn something from them if they do decide to regulate online gaming and betting apps in India. 

With over 420 million mobile online gamers, online gaming platforms in India can potentially contribute Rs 19,500 crore GST by 2025. That’s according to an EY-All India Gaming Federation report. 

Flush with funds from foreign investors, gaming firms do have the financial muscle to make this sizable contribution to state coffers.

However, high GST rates may prove counterproductive for both the gaming industry and government revenues. After all, gaming companies are already contributing service fees, license fees, GST, corporate taxes, etc. 

Additional tax burdens can threaten the viability of firms and discourage foreign investors. There are also apprehensions that an exorbitantly high GST rate may push both operators and consumers towards offshore illegal betting and gambling sites that pay no taxes. 

That said, more efforts are still needed to strike a balance between reasonable taxation and supporting the growth of the online gaming ecosystem in India.

Socio-Economic Impact

While state governments eye beefing up their treasuries via GST from online gaming, the socio-economic impact cannot be ignored. Excess gaming and gambling addiction have been scientifically linked to stress, anxiety, depression, financial losses, and bankruptcy among vulnerable consumers.

Gambling disorder and suicide rates could spike with increased legitimization and easier access brought by inexpensive data tariffs. Several states have already banned or looked to curb gaming app usage to shield their youth from addiction risks. 

Tamil Nadu was the first to enact the Online Gaming Ban law in November 2020. Andhra Pradesh and Telangana followed suit with statewide bans in October and February 2021 respectively.

However, the bans by Tamil Nadu in 2020 and Karnataka in 2021 were struck down by the Madras High Court and Karnataka High Court respectively for being unconstitutional and violating federal rights.

The courts observed that complete bans are disproportionate to address concerns of addiction and financial risks. Bans also threaten the livelihoods of genuine stakeholders. 

Andhra Pradesh and Telangana continue to enforce complete prohibition of online gambling, betting, and wagering games within their states. Kerala too had earlier declared online rummy and similar games entirely illegal under its gaming laws.

So far, Tamil Nadu and Karnataka states are still looking for ways to prohibit online gaming without disturbing the constitution. It does seem like both states are still moving in this direction. 

We can only wait and see if they come up with something that the High Court wouldn’t dismiss.

What Could Happen Next?

The proposed 28% GST on online gaming holds both promises and perils. On one hand, it opens the possibility for states to earn thousands of crores in valuable tax revenues from the booming digital gaming industry. 

However, high taxation also poses downside risks of reduced investment and youth addiction issues.

Moderate and balanced taxation aligned to responsible gaming guidelines can allow states to tap into online gaming revenues while mitigating any negative externalities. 

Furthermore, tax proceeds should be utilized to spread public awareness and provide counseling or rehab facilities for those impacted by gambling disorders. This balanced approach is what other countries already have. 

Conclusion

Regulating online gaming activities might promise a better turnout because it will be more of a problem if consumers turn to underground betting. However, it should also be pointed out that doing that will be a meticulous process.

Even if India decides to regulate online gaming and betting, it will take time to work on it and implement the laws. Licensing online gaming sites can also take time to complete. For now, we can only wait and see if that’s something we’ll see in the future.

Disclaimer: This content is sponsored and does not reflect the views or opinions of Ground Report. No journalist is involved in creating sponsored material and it does not imply any endorsement by the editorial team. Ground Report Digital LLP. takes no responsibility for the content that appears in sponsored articles and the consequences thereof, directly, indirectly or in any manner. Viewer discretion is advised.

Follow Ground Report on X, Instagram and Facebook for environmental and underreported stories from the margins. Give us feedback on our email id [email protected]. 

Don't forget to Subscribe to our weekly newsletter, Join our community on WhatsApp, Follow our Youtube Channel for video stories.