It was recently revealed that the Indian government has stated that it would levy a 28% tax on the funds online gaming firms earn from their clients from each game. In addition, companies have so far paid little tax on the fee they charge for providing real money games and this move by the government is a huge blow to a $1.5 billion industry that has grown in popularity and lured foreign investment.

The iGaming companies disagree with the decision:

Commenting on the government’s decision, Finance Minister Nirmala Sitharaman said: “The decision to impose tax on the total amounts gaming companies collect was taken after consultation with states, and the intent was not to hurt the industry.” However, representatives of the iGaming industry seem to disagree with the Minister, saying that “it would sap their earnings and the extra charges were likely to be passed on to customers.”

What’s more, Aaditya Shah, chief operating officer at the gaming app IndiaPlays, added: “The implementation of a 28% tax rate will bring significant challenges to the gaming industry. This higher tax burden will impact companies’ cash flows.”

In addition, Roland Landers, CEO of The All India Gaming Federation, said in a statement: “The decision was unconstitutional (and) irrational. It will wipe out the entire Indian gaming industry and lead to lack of job losses and the only people benefiting from this will be anti-national illegal offshore platforms,” according to Reuters.

Reason for the Government’s decision:

The main reason behind the aforementioned government decision is that although the gaming apps are supported by sports champions in India, where cricket is the most popular sport, concerns have been raised about financial losses and potential addiction.

However, the apps are one of the reasons for the large investments in the online gaming industry. One example of the huge impact these apps are having on India’s online gaming industry is Dream11, the $8 billion flagship sponsor of the Indian national cricket team, which is supported by Tiger Global. When playing fantasy cricket games on Dream11, players can make their teams by paying 8 rupees (10 US cents) and have a chance to win a large prize of 1,2 million rupees ($14.565). In addition, Peax XV, formerly Sequoia Capital India, has invested in the MPL app. But Dream11 and MPL did not provide an answer when asked for a comment.

In this regard, during this month, Redseer consultancy said: “The revenue of fantasy gaming platforms during the popular Indian Premier League cricket matches rose 24% from a year earlier to over $342 million with over 61 million users participating.”