Navigating regulatory challenges and taxation hurdles to pave way for growth
India's online gaming industry faces several challenges, primarily due to regulatory ambiguity and high taxation.
As Aruna Sharma, Practitioner Development Economist, and former secretary, Ministry of Electronics and Information Technology (MeitY), noted, "The online gaming industry is facing issues due to the regulatory ambiguity under the IT Amendment Rules, 2023, as the formation of Self-regulatory bodies (SRB) was a job half-done with no designated central regulatory authority to address the industry concerns. Additionally, the lack of differentiation between games of skill and chance makes it difficult for legitimate domestic and international gaming companies to operate smoothly."
The increase in GST from 18% to 28%, along with retrospective tax applications, has placed a significant financial burden on the industry. Parth Chadha, Co-founder and CEO, STAN, states that "taxation has been a significant challenge for the industry. Many online gaming companies had to close shops and resort to layoffs."
Despite these hurdles, the Centre has witnessed a significant increase in revenue from online gaming. Finance Minister Nirmala Sitharaman reported a "staggering 412% jump in revenue from online gaming, reaching Rs. 6,909 crore in six months." The sector has attracted substantial foreign direct investment (FDI), particularly in the pay-to-play segment, with a report by the United States-India Strategic Partnership Forum (USISPF) and Ernst & Young (EY) noting that since 2019, "the Indian gaming sector has attracted FDI of $2.6 billion from domestic and global investors."
