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New GST regime catastrophic for skill based gaming industry: Report

New GST regime catastrophic for skill based gaming industry: Report

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The new GST regime will be detrimental to the skill based online gaming companies’ revenue and margins.

The new GST regime will be detrimental to the skill based online gaming companies’ revenue and margins.
| Photo Credit: AP

The impact of the new GST regime on skill based online gaming companies has either been detrimental to their revenue and margins or has been outright catastrophic, making the business model completely unviable, found joint research by Ernst & Young (EY) and the U.S. India Strategic Partnership Forum (USISPF).

After GST amendments, the pay-to-play online skill gaming industry has to pay 28% on deposits.

Since the new tax regime, no capital has been raised in this sector since 1st October 2023. Some companies reported a complete withdrawal of global marque investors, the report said.

Since 2019, the Indian gaming sector has attracted FDI of $2.6 billion from domestic and global investors, 90% of the FDI was attracted in pay-to-play format of the online gaming sector.

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“Before the amendment, the GST cost constituted 15.25% of the revenue. However, since October 2023, the GST cost has increased manifold, with GST now consuming 50-100% of the revenue for 33% of companies and even surpassing total revenue for startups.”

Over half of the sector’s enterprises are either staring at stagnant revenues or shrinking topline, with 25% experiencing growth declines of up to 50%.

Decreased margins due to increased GST had resulted in employee layoffs and a complete pause in hiring specialist skills such as technology, product, animation, and design.

The report recommends an amendment in the valuation mechanism for online money games to levy GST from the current “full-face value of total deposits” to platform fees, i.e., the amount retained by online gaming platforms for operating a game.

In contrast, most countries globally tax on platform fees. In limited cases where countries levy indirect taxes on deposits, the tax rate is lower to maintain parity with platform fees like Poland and Portugal tax on deposits rate is 12% and 8%, respectively.

The increase in GST cost will lead customers to move towards alternative options such as offshore platforms resulting in a loss of revenue for the exchequer, the report points.

“Considering the adverse effects of this taxation on industry growth, it is recommended that GST should be applied to either the Gross Gaming Revenue or the platform fee,” said Bipin Sapra, Tax Partner, EY India.



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