Gaming Industry at Risk of Shutdown Over ₹1.1 Lakh Crore GST Demand: Dream11’s Harsh Jain

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The Indian online gaming industry faces significant challenges if the central government continues with its demand to recover over Rs 1.1 lakh crore in Goods and Services Tax (GST), including retrospective charges, stated Dream11 co-founder and CEO Harsh Jain.

As reported by Times of India, Dream11, one of India’s leading gaming companies, is among the 400 gaming firms facing GST notices, with its own outstanding tax demand amounting to Rs 28,000 crore. According to Jain, the industry does not have more than Rs 10,000 crore in available funds to meet these tax demands.

“All the financial numbers that you see for us are in terms of our valuations (at the time of fund raises). But valuations can’t pay taxes. The industry will struggle if forced to pay the tax demand,” Jain told The Times of India (TOI).

GST Hike and Retrospective Taxation Impact

The GST Council’s decision on October 1, 2023, to impose a 28% tax on the full face value of player collections, up from the earlier 18% on company revenues, has significantly impacted the industry. Additionally, the government extended this tax retrospectively to cover transactions from August 2017 to October 1, 2023.

Jain, who co-founded Dream11 in 2008 along with Bhavit Sheth, called the tax demand “unsustainable.” Dream11, which was valued at $8 billion in 2021, has been affected despite strong revenue growth. In FY23, Dream Sports, the parent company of Dream11, reported a consolidated revenue of Rs 6,581 crore, a 62% increase from Rs 4,065 crore in the previous year. Profits rose to Rs 188 crore from Rs 142 crore. However, the company’s auditors had noted that the GST demand created a “material uncertainty” about its ability to continue as a going concern.

Industry Revenue and Investment Decline

Jain highlighted how the government’s tax policy has increased tax collections while affecting industry revenues.

“Government’s collections went up from around Rs 3,000 crore (before the GST rate changes) to Rs 16,000-17,000 crore under the new GST rates and TDS. However, the industry’s revenue went down by 30-40%, and profits declined by 60-70%,” he said.

Venture capital investment in the sector has also reduced, forcing several companies to shut down and leading to job losses. While the top 10 gaming firms, accounting for nearly 90% of the industry’s GST payments, remain profitable, their earnings have dropped by 60-70%.

Call for Regulatory Body and Policy Reforms

Jain has urged the government to establish an independent statutory regulator, similar to the Securities and Exchange Board of India (SEBI), to oversee the gaming sector.

“In any market, you’ll have people doing wrong things until regulators step in. We hope that regulations come in gaming. We need a SEBI-like body for gaming. We’ve been waiting for regulations for almost two years. Hope the IT ministry starts working on this,” he stated.

He also called for a reconsideration of the GST structure, advocating for taxation based on Gross Gaming Revenue (GGR) rather than the full face value of player deposits.

Offshore Gaming and Tax Evasion

Jain also raised concerns about offshore gaming companies operating in India. He claimed that many of these entities evade government taxes and promote betting rather than skill-based gaming, affecting the domestic industry.

As the online gaming sector navigates these regulatory and financial challenges, industry stakeholders await further clarity from the government,hoping for a sustainable taxation policy that supports growth and compliance.

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