Online gaming has grown into a sector of significant economic and social impact. In his post-budget interviews, CBIC Chairman Sanjay Agarwal highlighted the growth in the government’s GST revenue and emphasized the online gaming industry’s contribution to revenue collections. Since the imposition of a 28% GST on the industry, revenues from the online gaming sector have quadrupled with GST collections now averaging Rs 1,100- 1,300 crore a month.
Online gaming: a consistent performer
The sector has contributed consistently to the Indian economy over the last few years. In FY 2020-21, online gaming contributed approximately Rs 2,000 crore to the public exchequer. In February this year, Revenue Secretary Sanjay Malhotra GST collections had surged by 475% between November 2023 and January 2024 due to the industry. He further specified that the government was expecting an annual collection of almost Rs. 14,000 crores in tax revenue from the sector by 2025. Over Rs 1,080 crore in tax deducted at source (TDS) was generated by the online gaming industry in FY 2023-24 until February 2024. It can be noted that in FY23, the sector achieved a compound annual growth rate (CAGR) of 28%, reaching a market size of over Rs 16,000 crore, and is expected to surpass Rs 33,000 crores by FY28. It has attracted investments totalling Rs 22,931 crore from both foreign and domestic sources up to FY24 and is projected to add 2.5 lakh in jobs by 2025. The online real money gaming sector dominates the Indian market with over 82% of the market size of the overall gaming market.
With forward and backward linkages to industries like FinTech, Artificial Intelligence (AI), and cloud technologies, the sector’s performance has helped uplift the overall digital ecosystem in India. The growth showcased by the online gaming sector clearly underscores India’s potential to become a global gaming hub. The increasing popularity of online gaming, coupled with India’s large youth population, will help the sector continue its contribution to India’s growing economic prowess.
In its 51st meeting, the GST Council recommended amendments to the CGST Act, 2017 and IGST Act 2017 in order to provide clarity on the taxation of supplies in online gaming. Consequently, the industry is now taxed at 28%. Compliance shown by the industry and the consequent boost in GST revenues evidence the success of this measure. Tax collections from the high- performing online gaming sector are fuelling economic growth in India, aiding development across the country and helping the government achieve its economic ambitions of achieving a $1 trillion economy by 2030.
Notably, this year’s Economic Survey and Union Budget established the need to ease compliance for businesses, which is now a priority for the government’s fiscal agenda. This will likely enhance India’s attractiveness as an investment destination, giving us the opportunity to attract more FDI. Amendments outlined in the Finance Bill will further bolster the efforts of the GST Council by improving ease of doing business, facilitating trade, and simplifying the GST regime. Industries and consumers remain hopeful that in line with these efforts, the Council will also settle the ongoing debate on rate rationalisation, given the compliance and improved tax acceptance demonstrated by Indian taxpayers.
Need for Regulation and Tax clarity to consolidate tax revenues
According to the Economic Survey 2024, Online Gaming is one of the top contributors to India’s start-up ecosystem in 2023, accounting for 4 percent of the new tech- based start-ups. The Indian government has already taken certain positive steps to regulate the online gaming sector, including appointing the Ministry of Electronics and Information Technology (MeitY) as the nodal agency for online gaming. However, despite having the provision of self-regulatory bodies (SRBs) within the IT Rules of 2021, the effective implementation of these rules is pending. Given the new-age industry that the online gaming sector is, a light touch regulatory approach, complemented by SRBs, is essential for the online gaming sector to realize its full economic potential and further contribute to the economic growth. Certainty in both taxation and regulation will further fuel the investor interest in this sector and provide certainty to the sector, leading to creation of lakhs of jobs and billions of dollars in investments. It will further increase the tax revenues for the governments, both from direct and indirect tax.
