March 3, 2024

Peak XV, Tiger Global, others urge PM Modi to review India’s online gambling tax

Tiger Global, DST Global, Peak XV, Steadview Capital, and Kotak Private Equity are among global and Indian investors who have called on Prime Minister Narendra Modi to reconsider India’s recently announced taxation of online gambling, saying the “heavy tax regime” will result in a $2.5 billion write-off and the loss of 1 million direct and indirect jobs.

The Goods and Services Tax Council, made up of top federal and state finance ministers, said earlier this month it had agreed to levy 28% on entry points on the full face value of online gambling.

The GST Council’s decision has had the “unintended consequence of equating the online gaming industry with constitutionally protected legitimate skills like gambling, betting and other ‘games of chance,'” a group of 30 investors wrote in a letter to Indian Prime Minister Narendra Modi on Friday.

“We invested in this sector with the vision to make India the gaming capital of the world, which would help generate, among other things, high-skilled jobs, billions in foreign capital and make the country a net exporter of innovation in gaming and related fields such as animation, artificial intelligence and visual effects,” the letter said.

Online gaming is one of the fastest growing consumer internet businesses in India. Fantasy sports startups – including Dream Sports, backed by Tiger Global and Alpha Wave Global and valued at more than $8 billion, and Mobile Premier League backed by Sequoia India – have all raised billions as a generation of internet users get into the habit of betting on real-world sporting events in hopes of making money. The latter on Friday gives online gaming firms in India an enterprise valuation of $20 billion.

Friday’s letter follows more than 125 companies warning New Delhi that the sector is facing an existential crisis and that there could be a huge loss of investments due to the Goods and Services Tax Council’s decision. Dream11, India’s top fantasy sports startup, an 80% drop in its EBITDA is projected after the new rule, Indian news outlet Arc reported earlier.

“The current GST proposal will establish the most onerous tax regime for the gaming sector worldwide, potentially writing off the $2.5 billion capital invested in this sector,” the investors’ Friday letter said. “This will also negatively impact potential investments of at least $4 billion over the next 3-4 years and thus the growth of the gaming sector in India.”

Through the letter, a copy of which was reviewed by TechCrunch, the investors urged New Delhi to examine the following aspects before implementing the new taxation rule:

a. If “total value of bets” is understood in a way where GST is charged on every tournament played every time there are fully taxed winnings, the GST burden will increase by 1,100% and due to taxing of redeployed players’ boots, the same money will be taxed over and over again resulting in more than 50-70% of every rupee going towards real skill gambling. As a result, investments made would be written off and investor confidence would be hurt.

b. If the “total value of bets” for the purpose of levying GST on online gambling is the total deposit value ie. deposits made by users and not taxed again if the winnings are redeployed to play a game (in line with casinos), the GST burden will increase by 350%. This will lead to the closure of most gaming start-ups and will require major industry-wide restructuring to survive. Most importantly, digital deposits for online games and made through authorized payment channels would allow GST authorities to track and verify all GST Filings and eliminate any scope for manipulation by unscrupulous actors.

c. If 28% GST is to be levied on the Platform fees/Gross Gaming Revenue, the GST quota would be increased by 55%. This would ensure that the Indian online gambling operators would be able to survive and that they are able to be a key contributor to the Indian economy. Further, such a proposal to levy GST on GGR would be in line with internationally accepted and proven practices.

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