GST on online skill games: Peak XV, Tiger Global and other VCs seek Narendra Modi’s intervention

As many as 30 investors, including Peak XV Partners, Kalaari Capital, Tiger Global, and Alpha Wave, have written to the Indian Prime Minister Narendra Modi seeking a review of the decision to impose 28% GST on ‘online skill games’. 

Calling for an “urgent attention”, investors in the letter say, “If full value of bets is understood in a manner where GST is levied on every contest played every time with fully taxed winnings, the GST burden will increase by 1,100% and on account of taxation of redeployed player winnings, the same money will get taxed repeatedly resulting in a scenario where over 50-70% of every rupee will go towards GST...”

Investors say the move will make the online real-money skill gaming business model unviable, lead to the writing off of investments made and hurt investor confidence. 

“If “full value of bets” for the purpose of levy of GST on online gaming is the full deposit value i.e. deposits made by users and not taxed again if the winnings are redeployed to play a game (at par with casinos), there will be a 350% increase in GST burden. This will result in the closure of most gaming startups and will require major restructuring across the industry to survive,” the letter adds.

Investors in the letter also pointed out that there are three unicorns in the online gaming space at the moment, and is expected to increase to 10 by FY27. They also highlighted that “skill-based real money gaming” is the largest gaming sub-sector of the online gaming space. It is estimated to have contributed to nearly Rs 4,500 crore in GST at the rate of 18% of the operator’s gaming revenue in FY24, investors added.

India’s skill-based real-money gaming firms are in a tizzy ever since the 50th GST Council meeting decided that a 28% GST will be levied on the full face value of online gaming. The tax regime is likely to come into effect once the finance ministry brings the amendment to the GST law. 

“Online gaming, horse racing, and casinos will be taxed at 28% (all three activities) and they will be taxed on full face value,” Union Finance Minister Sitharaman said in a media address following the meeting.

The move has likely dealt a severe blow to real-money gaming firms like Dream 11 and Mobile Premier League. According to a recent report, Dream11 has reportedly forecasted an 80% drop in EBITDA after the government move. 

Before the investors’ letter, more than 100 Indian entrepreneurs, CEOs, and industry bodies involved in real-money gaming wrote to the Indian government, seeking reconsideration of the 28% GST decision.

The letter, signed by companies like Nazara Technologies, Baazi Games, and Winzo Games and industry body All India Gaming Federation, said that the move is going to hurt the industry and that clubbing “online skill gaming, a constitutionally protected activity, with betting and gambling, has left the industry in significant distress.”

They also warned that the move will encourage users to go to illegal offshore gambling operators, job losses in the industry, and subsequent tax losses. 

So far, there has not been a significant hint from the government that it might reconsider the GST Council decision. 

"I have clarified yesterday that we will certainly take this evolving framework that allows permissible online gaming, including permissible online real money gaming, and we will ask the #GST Council to consider it,” Minister of State for Electronics and Information Technology of India Rajeev Chandrasekhar said in an interview.