Online gaming sector in India hit hard by GST hike: over half of enterprises report revenue decline

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The online gaming sector in India has shown signs of strain following the imposition of a 28% goods and services tax (GST) on total deposits. The report, titled “Impact of new GST law on skill-based online games,” was jointly published by EY and the US-India Strategic Partnership Forum (USISPF) and is based on a survey of 12 companies within the sector.

As reported by Business Standard, the findings reveal that more than half of these enterprises experienced a decline or stagnation in their revenues since the GST amendment came into effect. Specifically, seven companies reported either negative growth or stagnant revenues, with two companies experiencing revenue declines of up to 50%. This contrasts with the previously growing industry, which had been experiencing exponential growth rates.

Prior to October 1, 2023, online skill gaming operators were taxed at 18% of the gross gaming revenue or platform fees—the portion of deposits that the platform retained. The revised taxation, which took effect on October 1, 2023, subjects online money games to a 28% GST on the total deposits made with the platform. This adjustment has increased the tax burden on these companies, many of which have had to absorb the higher costs to remain operational.

“This change resulted in a higher tax burden for companies operating in this sector, many of which had to absorb the increase of tax to sustain their operations,” the report stated.

The increased tax has also affected employment within these companies. According to the report, ten out of the twelve surveyed companies faced challenges in job creation. Four companies have halted hiring altogether, while one-third have laid off up to 50% of their workforce. Additionally, one company had to let go of more than half of its employees, and another was forced to shut down operations.

“For a sector which has created 100,000 jobs and was expected to create around three times more jobs in coming years, such job erosion is an alarming concern that reflects the adverse business impact of the GST,” the report noted.

The surveyed companies suggested that taxing the sector on net deposits, rather than total deposits, would be a more sustainable approach. Seven out of the twelve companies supported this idea, with a split between those advocating for an 18% GST and those favoring the current 28% rate on net deposits.

Bipin Sapra, tax partner at EY India, commented, “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. This adjustment would foster sectoral growth and prevent revenue leakage.”

He further explained, “This approach recognizes that the true value of taxable supply is the platform fees, which cover the services provided by the gaming platforms, while the remaining amount contributes to the prize pool for winners.”

The report highlights the need for a revised taxation strategy to address the negative impacts on the online gaming industry, which was previously on a growth trajectory. As the sector continues to navigate these challenges, the call for a more balanced tax regime grows among industry stakeholders.

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