India Will Attract Foreign Investment In Online Gaming Companies But Taxation Policy Must Be Finalized First

Online gaming has been surging in multiple countries but India is one of the leading nations. This will lead to significant growth in foreign investments. However, companies will need reasonable taxation and reliable regulation.

With the GST Council still deliberating on taxation policy for online gaming, FDI (Foreign Direct Investment) has been affected. However, after the council reaches a consensus, India’s online gaming startups and emerging players will attract foreign investment, indicated Finance Minister Nirmala Sitharaman.

GST Council Discussing Various Aspects Of Online Gaming For Taxation And Regulatory Purposes

Finance Minister Nirmala Sitharaman informed the GST Council is deliberating on taxation policy for online gaming. As a response to a question from a Korean gaming company Krafton on what are India’s plans to attract foreign investment in gaming companies, she said:

“The discussion is going on at the ministerial level in the GST Council into various aspects of online gaming, including taxation and regulation. Once the policy certainty arrives, taxation becomes more … clear, it will attract investors.”

At the core of the discussion lies the issue of taxing online gaming platforms. As we had previously reported, a Group of Ministers (GoM) had essentially slapped a blanket GST of the highest order on all online gaming platforms. In other words, according to the GoM, online gaming platforms would attract a GST of 28 percent. Currently, they attract 18 percent GST, irrespective of the nature of the games.

Speaking about the nature of games, there are several online gaming platforms that do not ask players to bet or gamble. These platforms offer a “game of skill”. Many states have been asking for a lower tax rate on those online games which require skill. They are of the opinion that games of skill should not be treated at par with games of chance.

Online Gaming Being Held Back By Regulatory Delays?

Online gaming surged during the pandemic, and the industry has continued its upward trajectory. According to a report, this sector would grow to ₹29,000 Crores by 2024-25 from ₹13,600 Crores in 2021.

However, there has been no consensus on the GST to be levied on online games for nearly two years. Moreover, the Ministry of Electronics and IT recently notified revised norms for the online gaming sector. One of the regulations categorically prohibits all games involving betting and wagering.

The final decision on taxation of online games, its structure, and categorization, is expected to take place in the next few weeks. Hence, the industry could soon have clarity about the legal definition, identification, and taxation, which could open the floodgates for foreign funding and investment.