A Look at the Challenges of Collecting Fees from Foreign Games:

According to IDEA, The Parliament Research Center has recently published a report addressing the challenges of ‘fees for foreign games’ and has stated that the mechanism for collecting these fees is not effective. While the Research Center has examined the challenges of this law years after its introduction, in recent years, Iranian game developers have repeatedly criticized the lack of transparency in the process of paying fees for foreign games.

Also, in the annual reports published by the National Center for Computer Games about the status of game production, there is never any mention of how much revenue has been collected from foreign games and how this revenue has been allocated to support the growth of the country’s game industry. On the other hand, in recent years, the issue of collecting fees from foreign games has been raised, but these games are not officially imported into Iran due to sanctions and most of them are available to gamers through unofficial channels. Some game developers claim that only 5% of the foreign game market follows the official process. Therefore, according to their beliefs, collecting fees from foreign games does not benefit domestic game developers at all.

Lack of Transparency

The discussion of collecting fees from foreign games was first brought up in 2018 by the National Center for Virtual Space. In that year, the National Center for Virtual Space approved an executive order titled ‘Executive Guidelines for Collecting 10% of Revenues from the Commercial Distribution and Sale of Foreign Computer Games.’ At the same time, there were numerous criticisms and objections from game developers regarding the lack of transparency in the process of collecting fees. Nevertheless, this law has been included in the country’s budget law since that year. Even in the budget program law for the year 2023, attention has been paid to this issue. In the revenue section, paragraph (q) of Article 6 of the budget law states: ‘The Tax Affairs Organization, in cooperation with the Ministry of Culture and Islamic Guidance, is obliged to collect fees equivalent to 10% of the selling price from suppliers of various types of foreign games that can be installed on computers, mobile phones, and console gaming platforms and deposit it into the general revenue account at the Treasury of the entire country.’ Ultimately, this amount is supposed to be placed under the control of the National Foundation for Computer Games as the policy-maker for the game industry to support the development of domestically produced games. However, to date, with the inclusion of this legal provision in the budget, the financial circulation statistics of foreign games have not been disclosed by the National Foundation for Computer Games.

The lack of transparency in the process of collecting these fees, the amount collected, and the allocation of these fees to each game producer has led the Research Center of the Parliament, as an advisory arm of the Parliament, to enter the field of transparency in this area. In a report, this center has stated that due to the diversity of financial transactions and the difficulty of monitoring and controlling in the virtual space, fees from foreign games are not collected effectively.

The Research Center of the Parliament has mentioned six factors as reasons for the ineffective collection mechanism of fees from foreign games. The first reason is the absence of any financial information from suppliers of foreign games that can be installed on computers, mobile phones, etc., in the National Foundation for Computer Games. In the next step, diverse financial transactions and the existence of cryptocurrencies as a new form of exchange have been declared as another factor for the ineffectiveness of the fee collection mechanism for foreign games.

The shift of game carriers from hardware tools towards online platforms for game distribution, the difficulty of monitoring and controlling many computer games offered in the virtual space, keeping them hidden, and the use of intermediary companies by sellers of computer games in online payment systems, existing restrictions in some countries, and privacy protection laws for sellers and internet service providers regarding the disclosure of their information are other reasons mentioned in this regard by the center.

According to the Research Center of the Parliament, in order to strengthen the mechanism for collecting taxes from foreign games, other relevant authorities in the field of computer games should collaborate with the Ministry of Culture and Islamic Guidance. Therefore, this center has proposed that, alongside the Ministry of Culture, the Ministries of Economic Affairs and Finance, and Communications and Information Technology should also be included in the text of the budget bill to identify distribution centers and collect taxes. Accordingly, the proposed text for amending Article 14 of the bill for the annexation of certain provisions to the State Financial Regulations Act (3) is as follows: ‘The Ministry of Culture and Islamic Guidance, in collaboration with the Ministry of Economic Affairs and Finance and the Ministry of Communications and Information Technology, is obliged to identify suppliers of various foreign games that can be installed on computers, mobile phones, and consoles and place them at the disposal of the National Tax Administration of the country to collect fees equivalent to 10% of the selling price, and deposit it into the general income account of the National Treasury of the country. 100% of the proceeds shall be placed at the disposal of the Ministry of Culture and Islamic Guidance and the National Foundation for Computer Games to be spent in accordance with the annual budget laws and after concluding an agreement with the Organization for Program and Budget of the country for the development of domestic game production.’

Effective Implementation of Copyright

However, many domestic game developers believe that the law on collecting fees from foreign games is not conducive to supporting the domestic game industry. This is because a significant portion of the Iranian gaming market consists of foreign games that are unofficially made available to gamers.

In this regard, Mohammad Zehtabi, the CEO of Paeizan Game Studio, stated that only a small volume of foreign games is officially imported into the country, and this volume may be less than 5%.

In response to the question of whether considering such a law to support the domestic game industry is effective under these circumstances, he said, “The issue of collecting fees from foreign games has been discussed for many years, but no clear result has been achieved. One of the main reasons for this is that the platforms that publish some of these games have not cooperated as needed. On the other hand, since 2018, when international sanctions increased, the volume of official entry of foreign games into Iran has decreased, and official representatives of famous foreign games no longer continued their operations in Iran.” In his opinion, given that the official volume of imports of foreign games into Iran is less than 5%, collecting fees from this volume of imports is not significant, as the revenue generated in this way will be very low.

He continues to state: ‘In addition to the limited entry of foreign games into the official market, considering the high exchange rate, it doesn’t make much sense for a foreign game developer to work in Iran. Even the conditions in Iran are not acceptable for Russian and Chinese game developers to work officially in the country. On the other hand, people’s purchasing power for buying up-to-date smartphones has significantly decreased, and this has made it impossible for many new global games to run on the smartphones currently owned by people.'”

Zehtabi emphasizes that in these conditions, generating revenue from foreign games is not significant enough to warrant imposing taxes on them. In his opinion, the Iranian game development industry is facing various challenges that the National Foundation for Computer Games can easily address through specific policies, and there would be no need to provide support to the domestic production industry in this regard from the revenue of foreign game taxes. He explains: ‘One of the concerns for many game developers is that there are platforms that receive a significant share of the sales or distribution of a game compared to Google Play, and their conditions have made it more difficult for Iranian game developers. These platforms force Iranian game developers to pay a larger share of the sales or distribution of a game on their platform, while Google Play has clearer policies in this regard and provides a more comprehensive platform.'”

According to him, the monopoly and filtering of Google Play in the past year have led to a reduction in audience engagement for Iranian game developers, and this continued trend is causing serious harm to the generation of content through local games.”

In this regard, Amin Shahidi, a game developer, says that imposing taxes on foreign games in a situation where the National Foundation for Computer Games does not provide special support to game developers cannot be a good and effective policy.

He states in this regard: “In such conditions, the government can impose taxes on foreign games that would significantly support domestic game production. This is while not only does it not support the domestic game development in this field, but it also faces various obstacles like internet disruptions or filtering.'”

He continues: ‘If the National Foundation for Computer Games acted as a governing body responsible for the gaming industry and provided substantial support to game developers, such as providing the necessary infrastructure or organizing large specialized exhibitions and taking education seriously enough to increase the human resources in this industry, we could say that imposing taxes on foreign games might also be a way to help the domestic gaming industry.

However, when this current budget foundation – which holds significant resources – does not allocate its budget to support domestic games, it won’t invest the revenue it receives from foreign game taxes in this field.'”

Shahidi considers the statement that the Iranian gaming market is saturated with unofficially imported foreign games as a secondary issue that renders the implementation of the foreign game tax law ineffective. In his view, one of the factors that question the effectiveness of the foreign game tax law is the non-enforcement of copyright law in the country. He explains: ‘In a situation where the National Foundation for Computer Games provides holograms to pirated games that have entered the country illegally and allows stolen foreign games to be legally sold in the country, how can we collect taxes from these games that have been distributed in the market without regard to copyright law?'”

According to Iranian game developers, currently, it’s not only foreign games many Iranian games are distributed through unofficial channels on the internet and via a Telegram channel. They emphasize that if the government, particularly the National Foundation for Computer Games, is genuinely interested in supporting the domestic game industry, it would be better to address the issues faced by domestic game developers, including the enforcement of copyright law, instead of enacting ineffective legislation like imposing taxes on foreign games.