Major online gaming firms have urged the Central Board of Indirect Taxes & Customs (CBIC) not to hike the GST rate for the sector from 18% to 28% as suggested by a group of ministers (GoM).

The gaming firms have sent a representation through the FICCI Gaming Committee which counts Dream11, Nazara, Winzo, Krafton, MyTeam11, MPL, among others.

“This (recommendation) is a major shift from the current tax regime of charging GST on the platform fee/ gross gaming revenue (GGR) at the rate of 18%,” the companies wrote in the letter, ET reported.

The FICCI Gaming Committee submitted the letter to the board on Friday. The committee said that if the changes recommended by the GoM come into effect, the online gaming industry will be adversely impacted by the new tax regime.

In their representation to Vivek Johri, chairman of the CBIC, the gaming companies argued that they merely provide a platform to users and only the income generated by such companies should be subjected to GST.

The companies said in the letter that the online gaming industry needs to be treated at par with information technology service providers.

“As per the current practices followed by the online skill-based gaming companies, tax is paid at 18% on the platform fees (GGR) charged from players,” the letter reads.

The companies argued, it’s not only about the increase in GST, but the proposition of charging GST on the entire stake value, whether at the rate of 28% or 18%, would be equally disastrous for the online gaming industry.

As per the companies, such a steep hike in GST would drive the startups and new ventures towards extinction. The letter also said it would signal the end of the entire sector as this move may drive away companies and investors from the online gaming space. This will eventually have a negative impact on the tax revenue of the government and economy.

Due to the regulatory flux and uncertainty in taxation, Indian gaming startups already saw a massive decline in funding in 2022. The gaming firms raised $349 Mn in 2022, which was 80% lower than the capital inflow of $1.74 Bn in the previous year, according to Inc42 data. The average deal size stood at $3.4 Mn, a 38% decrease compared to 2021.

Currently, a tax rate of 18% is levied on the commission collected by online gaming platforms for games not involving betting or gambling.

Last December, the GoM looking at taxation of online gaming, races, and casino, headed by Meghalaya Chief Minister Conrad Sangma-headed panel submitted its second report to Finance Minister Nirmala Sitharaman.

It is to be noted that CBIC chief Vivek Johri said last year that online games in which winning is dependent on a certain outcome would attract 28% GST on the full bet value.