Delhi’s finance minister, Atishi, has expressed concerns that the recently proposed 28% Goods and Services Tax (GST) on online gaming companies could pose a significant threat to the entire Indian startup sector. She warned that such a tax rate could potentially result in substantial job losses and impede foreign investments.
During a virtual press conference, Atishi underscored the contributions of the online gaming sector, noting that it has attracted ₹70,000 crore in foreign investment, with an additional ₹25,000 crore expected in the near future. She emphasized that an unstable and erratic tax environment could impact not only the online gaming sector but also the entire startup sector.
Last month, it was reported that the government was in the process of sending out retrospective GST claims, some as high as ₹1.5 trillion, to the entire gaming industry. The government claimed that real-money gaming firms fell under the category of gambling. Several leading gaming firms are expected to receive these notifications by the end of the month.
On September 29, the finance ministry’s revenue department introduced a new tax rate through an amendment to the Central Goods and Services Tax Act, 2017. This amendment followed a recommendation made during the 51st GST Council meeting on August 2, which proposed a tax rate of 28% on the gross revenue of online gaming firms.
Atishi stressed the importance of withdrawing notices that could potentially lead to the closure of the online gaming industry. She planned to bring this issue to the attention of the GST Council during its meeting.
The finance minister criticized the conflicting approach of promoting startups and young entrepreneurs while simultaneously implementing policies that could negatively impact the startup industry’s largest sector. She pointed out that the online gaming industry, which employs over 50,000 individuals and is enjoyed by 400 million Indians, is not a luxury but provides entertainment to many in tier two and three cities.
Referring to the tax evasion notices, Atishi highlighted that the online gaming industry, valued at ₹23,000 crore, had received notices amounting to ₹1.5 trillion. Such a tax burden, she argued, could lead to the closure of companies, resulting in job losses for the more than 50,000 young individuals employed in the sector.
As an example, she mentioned a company valued at ₹19,000 crore that received a tax notice of nearly ₹10,000 crore, which could potentially lead to the company’s inability to pay the tax and eventual closure.
Atishi’s warning highlights the potential ramifications of taxation policies on emerging sectors and startups in India.