FDI inflows would provided relief to the industry after a controversial tax hike. Credits: gorodenkoff/GettyImages

India’s government is considering allowing 100% foreign direct investment (FDI) in its online gaming sector after a tax hike caused mass disruption in the industry.  

The business news site Mint reported that officials were reviewing a proposal from the Department for Promotion of Industry and Internal Trade.  

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The tax hike 

In 2023, the Goods and Services Tax (GST) council approved a 28% tax on real-online money gaming which came into effect in October.  

Before the amendment, start-ups paid a small tax on the fee they charged users for offering the games.

The new tax applied to the full-face value of a gaming transaction. It was estimated that under this regulation, over half of player winnings would be taxed.  

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For every $100 spent by a player, $28 would go to GST, $5-10 would be charged by the gaming platform, and there would be a 30% tax deducted on player winnings.  

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Gaurav Gaggar, a promoter for a poker site, said the tax “killed the multibillion-dollar industry with a single stroke. And at the same time the decision could give a massive boost to illegal and illegitimate operators in the country.” 

A booming industry disrupted 

The decision through the industry for a whirlwind.  

It led to a dry up of funding, slashed through profit margins, stalled growth, caused job losses and an uncertain future for the industry, as per a survey conducted by EY and the US-India Strategic Partnership Forum.  

Before the tax changed, the GST cost accounted for 15.24% of the revenue. Since its implementation, the GST consumes 50-100% of the revenue of 33% of companies. 

The industry has not raised any new capital since October 1st, 2023, when the tax was implemented.  

A glimmer of hope 

While the government has not made any public statements yet, the possibility of allowing 100% FDI into the online gaming sector could provided much needed respite.