Online gaming industry grapples with 28% GST impact

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Since the government introduced a 28% Goods and Services Tax (GST) on online gaming bets over six months ago, the industry has been facing challenges. Some companies are expected to face a potential revenue drop of over 50%. Profitable firms are falling back into losses, and smaller entities are shutting down due to the financial strain.

A gaming company founder under anonymity revealed the harsh reality to Storyboard18, saying, “We were on a growth path in 2024 but are now running on losses.” They highlighted the substantial increase in monthly tax outlay, with 60-70% of revenue going towards GST, leaving minimal margins for operations.

The 28% GST applies to the full value of online gaming bets, not just net winnings. This means players are expected to pay a 28 per cent GST on the total amount they deposit, which increases the cost of playing. For instance, if a player bets Rs. 100, they would effectively have Rs. 28 less to play with due to GST, plus they have to pay the platform fees if any. Additionally, a 30% Tax Deducted at Source (TDS) is applied to winnings, further shrinking players’ returns.

The Lumikai report from October 2023 indicated that 60% of users believed the new GST and TDS rules would negatively affect their gaming activity. To ease this, many gaming companies are absorbing some or all of the GST burden, resorting to significant cost-cutting measures and reducing marketing expenses.

Funding in the Indian gaming sector has fallen by 75% year-on-year, mirroring a global trend. The lack of capital in the market, combined with unsustainable losses, paints a grim picture of the industry’s future.

Despite a significant rise in GST collections from online gaming since October, reaching approximately Rs. 1,200 crore monthly, this windfall for the government could however cause doom for the gaming industry. Several companies may exit the market, leaving offshore companies as the primary beneficiaries.

Aruna Sharma, a Policy Advisor and Practitioner Development Economist have asked policymakers to consider the societal impact and craft policies that mitigate adverse effects while fostering growth and innovation in the gaming sector.

Industry experts are advocating for a revised GST structure, proposing a rate reduction of 18% to ensure fairness and practicality. They have requested to differentiate between skill-based games from games of chance for effective regulation and fostering innovation and social empowerment.

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