Over 50% gaming cos saw revenue stagnate or dip after 28% GST norm: Report

Over half of the online gaming sector enterprises in India saw their revenues fall or stagnate after the Centre last year imposed a 28 per cent goods and services tax (GST) on total deposits on these platforms, a report released on Wednesday said.

The report titled "Impact of new GST law on skill-based online games" was released jointly by EY and US-India Strategic Partnership Forum (USISPF), based on the latter's survey of 12 such companies.

It showed that only five companies were able to record revenue growth since the GST amendment. Seven companies had either recorded degrowth or had to face stagnant revenues.

"In case of degrowth, the decline is as high as up to 50 per cent for two companies," it said. "Such decline in revenue growth stands in contrast to an industry which was recording exponential growth rates."

Before October 1, 2023, online skill gaming operators were subject to GST of 18 per cent of the gross gaming revenue/platform fees - the amount retained by the online gaming platform.

From October 1, 2023, however, online money games have been made subject to the highest GST rate of 28 per cent on the total money deposited with the platform.

"This significant 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 said.

The impact of the new GST norm was also seen in the employment in these companies. According to the report, as many as 10 of these companies faced "significant headwinds" on job creation.

Four companies ceased hiring but did not lay off any employees. One-third of the companies laid off up to 50 per cent of their workforce. One company had to lay off more than 50 per cent of the people and one had to shut down their 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," it said.

The companies that participated in the survey said that the best solution for this is to tax the sector on net deposits. It is the actual amount that stays with the platform for the service they provide.

Seven out of 12 companies said that the sector should be taxed on net deposits, out of which three recommended 28 per cent GST on net deposit and four were in favour of 18 per cent GST.

"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," said Bipin Sapra, tax partner at EY India.

"This approach recognises 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."