Peak XV, Tiger Global and others urge PM Modi to review India's online gambling tax

Tiger Global, DST Global, Peak XV, Steadview Capital and Kotak Private Equity are among global and Indian investors who have called on Prime Minister Narendra Modi to reconsider India's recently announced taxation on online gambling, saying the "onerous tax scheme" will lead to $2.5 billion in write-offs and the loss of one million direct and indirect jobs.

The Goods and Services Tax Council, which includes key federal and state finance ministers, said earlier this month that it had agreed to levy 28% at entry points on the total face value of online gambling.

The GST Council's decision has "the unintended consequence of equating the legitimate, constitutionally protected online games of skill industry with gambling, betting and other 'games of chance,'" a group of 30 investors wrote in a letter to India's Prime Minister Narendra Modi on Friday.

"We have invested in this sector with the vision of making India the gaming capital of the world, which would help generate, among other things, highly skilled jobs, billions in foreign capital and make the country a net exporter of innovation in gaming and related fields such as animation, artificial intelligence and visual effects," the letter reads.

Online gaming is one of the fastest growing consumer Internet businesses in India. Fantasy sports startups – including Dream Sports, backed by Tiger Global and Alpha Wave Global and valued at more than $8 billion, and Mobile Premier League backed by Sequoia India – have collectively raised billions as a generation of internet users get into the habit of betting on real-world sporting events in hopes of making money. The Last of Friday gives online gaming startups in India a $20 billion business valuation.

Friday's letter follows more than 125 businesses warning New Delhi that the sector is facing an existential crisis and could face a massive loss of investment due to the Goods and Services Tax Board ruling. Dream11, India's first fantasy sports startup, predicted an 80% drop in EBITDA as a result of the new rule, Indian news outlet Arc reported earlier.

"The current TPS proposal will introduce the most onerous tax regime for the gaming industry in the world, leading to a potential write-off of $2.5 billion in capital invested in the industry," the Friday investor letter said. "It will also have a negative impact on potential investments to the tune of at least $4 billion over the next 3-4 years and hence on the growth of the gaming industry in India."

Through the letter, a copy of which was reviewed by TechCrunch, investors urged New Delhi to consider the following aspects before implementing the new taxation rule:

one. If the "total value of bets" is understood in such a way that GST will be levied on each contest played each time with fully taxed winnings, the burden of GST will increase by 1100% and due to the taxation of winnings of redeployed players, the same money will be taxed repeatedly, resulting in a scenario where more than 50-70% of every rupee will go to GST, thus making the gambling business model unviable real money address. This would lead to the cancellation of the investments made and damage investor confidence.

b. If the "total value of bets" for the purpose of levying GST on online games is the total value of the deposit, i.e. deposits made by users and not taxed again if the winnings are redeployed to play a game (on a par with casinos), there will be a 350% increase in the GST charge. This will shut down most gaming startups and require major industry restructuring to survive. Importantly, as deposits for online games are digital and made through authorized payment channels, this would allow GST authorities to track and verify all GST declarations and eliminate any possibility of manipulation by unscrupulous actors.

c. If 28% GST were to be levied on Gross Gaming Revenue (GGR)/platform fees, there would be a 55% increase in the amount of GST. This would allow Indian online gambling operators to survive and be a key contributor to the Indian economy. Furthermore, such a suggestion to levy GST on the GGR would be in line with internationally accepted and time-tested practices.