 "GST Council likely to address retro tax on online gaming")
The Indian online skill-based gaming industry has been complaining about the high Goods and Services Tax (GST). A new study shows that the industry’s growth has been severely impacted, with growth in many firms stagnating and margins eroding.
According to a detailed study by Ernst & Young (EY) and US-India Strategic Partnership Forum (USISPF), over half of the sector’s enterprises are either facing stagnant revenue or a shrinking topline, with 25 per cent experiencing growth declines of up to 50 per cent. “This marks a stark departure from previous growth rates exceeding 100-200 per cent,” said the report.
The study surveyed 12 companies, representing different stages of operation and growth, and found that only five companies were able to record revenue growth since the GST amendment, whereas seven companies had either recorded degrowth or faced stagnant revenues. In cases of degrowth, the decline is as high as up to 50 per cent for two companies.
The report said, “Six companies have witnessed a decline in revenue growth ranging from 10-30 per cent, with certain companies facing a decline of 50 per cent. There are only a few companies that saw revenue growth, and that too in the 0-25 per cent range.”
The impact of this erosion of revenue growth has been on employment. Out of the 12 companies, as many as 10 companies faced significant headwinds on employment creation. Four companies ceased hiring but did not lay off any employees. One-third of the companies laid off as many as 50 per cent of their workforce. Also, one company had to lay off more than 50 per cent of its people, and one had to shut down its operations.
“For a sector which has created 100,000 jobs and was expected to create around three times more jobs in the coming years, such job erosion is an alarming concern that reflects the adverse business impact of the GST amendment,” said the report.
From October 1, 2023, the government revised the rate of taxation for the gaming sector to 28 per cent. This impacted fantasy games, card games, and casual games. This tax is applicable on the total deposits made by the players to the gaming platform. The taxation change also did not factor in the difference between skill-based games and games of chance. So far, the companies have been absorbing these taxes so that players are not impacted.
The report also said that the high taxation has also meant investors are shying away from the sector. “2021 stood out as the most significant year in attracting investments, and no capital has been raised in the sector since October 1, 2023.”
The report also stated that India has the most onerous and highest Indirect Taxation regime for online skill gaming. Most countries globally tax on GGR/platform fees, which are the actual revenue for the platforms for the service they provide. In limited cases where countries levy indirect taxes on deposits, the tax rate is lower to maintain parity with GGR models and not burden the sector with unduly heavy tax liability. For example, Poland and Portugal tax deposits, but the rate is 12 per cent and 8 per cent, respectively.
