India’s online gaming sector, valued at $3.1 billion, is projected to grow exponentially to $60 billion by 2034, according to a report by the United States India Strategic Partnership Forum (USISPF) and TMT Law Practice. The report highlights the sector’s impressive growth potential while addressing the challenges posed by stringent regulation and taxation.
The US has played a pivotal role in the sector’s development, contributing $1.7 billion of the total $2.5 billion in foreign direct investment (FDI). This reflects the strong confidence global investors have in India’s burgeoning gaming market. According to Dr. Mukesh Aghi, President and CEO of USISPF, “The gaming market is projected to become a $60 billion opportunity by 2034.”
A significant portion of the FDI, about 90 percent, is concentrated in the pay-to-play segment, which accounts for 85 percent of the sector’s valuation. However, the industry faces substantial challenges, particularly due to India’s high 28 percent Goods and Services Tax (GST) on total deposits made by players. This tax applies to all gaming formats, making India one of the highest-taxed gaming markets globally.
Key Highlights:
- 600 million gamers in India create vast opportunities for monetization and export potential.
- The UN Central Product Classification (UN CPC), which serves as the foundation for taxation globally, classifies online gaming separately from gambling. This distinction is crucial for fair taxation and regulation.
- Despite the immense potential, the report warns that high tax rates and regulatory challenges may impede growth. A more nuanced tax regime is necessary to prevent unregulated and untaxed offshore markets from undermining the domestic industry.
Abhishek Malhotra, a partner at TMT Law Practice, noted, “A more nuanced regulatory and taxation regime, similar to global markets, would not only provide clarity but also foster sustainable growth in India’s online gaming sector.”
The report examined regulatory frameworks in 12 major gaming markets, all of which distinguish between games of skill and games of chance. It recommends adopting platform revenue or commissions as the tax base rather than taxing total player deposits, aligning India’s policies with international standards and fostering sustainable industry growth.