India deals blow to online gaming industry with 28% tax

NEW DELHI, July 11 (Reuters) - Indias government on Tuesday said it would impose a 28% tax on funds that online gaming companies collect from their customers, in a blow to the $1.5 billion industry that has surged in popularity and attracted foreign investment.

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.

But industry representatives said it would sap their earnings and the extra charges were likely to be passed on to customers.

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

Roland Landers, CEO of The All India Gaming Federation, said the decision was \“unconstitutional (and) irrational\”.

The gaming apps are endorsed by sporting heroes in India, where cricket is a national passion, but concerns have mounted over possible addiction and financial losses.

The apps have also attracted big investors.

Dream11, which is the lead sponsor of Indias national cricket team and is valued at $8 billion, is backed by Tiger Global. Peax XV - previously Sequoia Capital India - has invested in MPL app.

Dream11 and MPL did not respond to requests for comments.

In fantasy cricket games on Dream11, users create their teams by paying as little as 8 rupees (10 U.S. cents), with a total prize pool of 1.2 million rupees ($14,565).

Until now, the companies paid a small tax on the fee they charged for offering real money games. The change announced on Tuesday will impose a 28% tax on the entire amount collected from players in every game.

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, Redseer consultancy said this month.