Ontario video game developers are welcoming a new report's recommendation for an improved tax credit system -- even if there is some skepticism the government will act quickly to make it happen.

The province is fertile ground for a burgeoning digital gaming industry and some commitments from the government are needed to make it happen, according a report funded by the Ontario government.

Key pre-requisites for growing Ontario's video games development sector, it says, include a better tax credit system that provides more reliable funding.

The government paid for the study through the Ontario Media Development Corporation because it wants to see if it can compete in the gaming aspect of the technology sector, says study co-author Joel Finlayson, partner with SECOR Consulting Team Ltd.

The report is titled Ontario 2012: Stimulating Growth in Ontario's Digital Game Industry.

"Gaming is a particularly attractive area because it brings together artistic skills with technical ability," he says, "and there are already a number of developers working in Ontario in this large and rapidly growing industry."

The worldwide digital game market generated revenues of US$32 billion in 2006, the report says. It will continue to grow at a rate of 10 percent a year for the next five years, a measure that outpaces traditional media industries.

Of that multi-billion global market, Ontario has a relatively small slice of the video gaming pie with just $70 million in revenue in 2006. The sector employs 850 developers and consists of mid-sized console developers and small PC game developers.

To boost the sector and enable it to be competitive on the international scene, the report suggests that Ontario increase the tax credit offered to game developers and make it more accessible.

The current tax credit of up to 30 percent for developers who own their intellectual property rights has been overtaken by other provinces' rates of 35 percent in Nova Scotia and 45 percent in Manitoba.

"I'm not in favor of getting into a tax credit war with other jurisdictions and having them try to one-up each other," says Mike Schmalz, president of Digital Extremes, a London, Ont.-based game development studio. Founded in 1993, the studio is the creator of the popular Unreal Tournament first-person shooter series for PC and Microsoft's Xbox.

More important than increasing the amount of the tax credit is having one that's easy to use, Schmalz says. For example, video game companies are given a lesser tax credit of 25 percent if they don't own the intellectual property rights (IP) to their games -- but selling IP to publishers is part of the business model for gaming start-ups.

"Having a tax credit that does what it is intended to do will be very useful," he says. "Our ultimate goal is a level playing field in Canada, so we don't see our resources being trained in province and moving out of Ontario to go to other provinces, or even worse, to the U.S."

That's not the only tax credit problem for game developers in Ontario, says study co-author Lisa Woznica, associate principal of SECOR Consulting Team.

Developers need a longer production window to claim tax credits than the three years currently allowed. Developers are currently allowed to claim three years of production expenses on a project.

"It's still a pretty short window to produce a game, which is different from a film or television product," she says.

The Ontario Media Development Corporation (OMDC) recently raised that period from two years of production time, says George McNeely, communications manager with the crown corporation.

OMDC is an Ontario Ministry of Culture agency whose mandate is to that facilitate economic development opportunities for Ontario's cultural media industries.

The government also increased tax credits for game developers in May -- from 20 percent to 25 percent for companies with $20 million in revenue or more. Smaller companies can claim 30 percent.

Developers should also be able to claim tax credits for every fiscal year instead of waiting until a project