Doom And Gloom In Real Money Gaming Industry As New GST Regime Begins To Show Effects

• November 16, 2023
• CA Chandan Agarwal's Office

• Within a month, the real money gaming industry is feeling the impact of the new GST regime on revenue as well as user spending
• Online poker platforms are the worst affected by the changes, followed by rummy platforms
• While well-funded platforms are absorbing the increase in tax for now, it seems to be only a matter of time before they too start feeling the heat

The Indian online real money gaming industry is used to being in the eye of the storm. From periodic bans by various state governments to uproar from a section of society, the homegrown online gaming industry has somehow always endured and made its way through choppy waters.

While the regulatory shenanigans are nothing new, what came as a bolt from the blue was the GST Council’s decision to impose 28% Goods and Services Tax (GST) on the sector, sending all stakeholders in a tizzy.

The move thrusted the entire online real money gaming ecosystem in a state of flux as the focus suddenly turned from fearing adverse regulations to a long bill of tax evasion. What followed was a bloodbath that left many jobless and brought down the shutters on many gaming companies.

The aftermath was largely in line with what industry stakeholders predicted as the looming taxation challenges and a flurry of notices took the sheen away from a sector that once basked in glory. And all of this happened in a span of a few months, courtesy a single order from the GST Council.

The Council, in July this year, announced its decision to impose a 28% GST on the amount being paid at the entry level for online gaming. In August, amendments to the Central Goods and Services Tax (Amendment) Bill, 2023 and the Integrated Goods and Services Tax (Amendment) Bill, 2023 were approved by the GST Council. Later, the Parliament approved these amendments.

Finally, real money gaming platforms entered the new tax regime on October 1. While some states are yet to amend the GST law, they would apply the amendment retrospectively from October 1.

In line with the predictions, the increase in taxation seems to have an immediate impact on the online real money gaming industry and startups in the sector are reeling due to squeezed margins, decline in user spending, and no clarity about the future path.

Poker Bears The Brunt – Most Impacted Sub-Segment 

While at least a full quarter is needed to understand the complete impact of the changes in GST law, its effects are visible in the revenue margins and user spending of gaming platforms within a month of the changes coming into effect, according to industry stakeholders.

Platforms that offer online poker games are the most impacted by the changes in taxation, as per industry sources. The reason behind this is that the platform fee for poker used to be lower, at around 3-4%, as against 10%-15% for rummy and above 15% for many fantasy gaming leagues.

While poker platforms are absorbing some of the impact of the increase in GST rate for now, they have started passing on some of the increase to the users by charging 4%-5% higher platform fee. As a result, many of the platforms have not only seen a 10%-20% decline in their user base but also a 20% fall in their user margins.

It must be noted that online poker platform Spartan Poker  fired 125 employees or 40% of its total workforce after the new tax regime kicked in. It was not immediately clear which departments were impacted by the company’s retrenchment move.

Read more: https://inc42.com/features/doom-and-gloom-in-real-money-gaming-industry-as-new-gst-regime-begins-to-show-effects/