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Even as the Centre’s newly mandated goods and services tax (GST) rules for online gaming, set at 28 per cent, came into effect on October 1, the move has been met with mixed reactions from Indian gamers. While some players have rejoiced, others see the new tax as a potential threat to the inchoate industry.
Rishi Raj, an avid online poker player based in Gurugram, believes that the government has succeeded where most of his family failed — in getting him to quit real-money gaming (RMG). Raj, who has won nearly Rs 7 lakh through online gaming, has also lost Rs 5 lakh.
“The new GST rules spell doom for my finances as the profit percentage per game has shrunk exponentially. I must invest much more per game to match my current average earnings,” he says.
“This is likely to reduce my engagement with online poker, if not lead me to completely quit,” he adds.
However, there are others who believe they can cushion the expected blow from the new GST regime.
Reena Mallik (name changed on request), who has participated in several international RMG tournaments, believes that professional players will not be as extensively affected by the new GST rules.
“If you are playing with a large pool of players, the costs and risks are shared, and the individual consequences are therefore muted. I believe this presents an opportunity for smaller e-gaming companies to introduce larger and more efficient pool-play structures for their games. Necessity is the mother of invention, and I think this will help e-gaming platforms in India to elevate their professionalism and become more competitive gaming arenas,” she says.
However, industry stakeholders have expressed concerns about the potential impact of the new tax regime on the country’s nascent gaming industry, as many startups have experienced disruptions in their operations.
Aside from professional gaming, the brunt of the impact is expected to be felt among casual gamers, who make up the majority of India’s gaming population.
According to industry estimates, these players, mostly from Tier-II and beyond regions, spend an average of Rs 300 to Rs 400 per month for daily engagement of 45 minutes and do not exceed Rs 10-15 per day.
Although the rules have yet to cause any drastic repercussions, many gaming startups have already begun to feel the aftershocks of the announcement.
A Hyderabad-based former gamer, who, along with his friends, has recently transformed their local game club into an e-gaming startup, believes this will be a crippling blow for fledgling firms like his.
“We have only recently invested in developing RMG with a mythological twist. Our developers are working on popular Indian board games like snakes-and-ladders, ludo, etc, adding a mythological spin to these games while also incorporating a strategy-based financial investment-and-winnings structure involving real money,” the former gamer explains.
He believes that while the model is unique and innovative, it will require time to develop a dedicated player base.
“The new GST rules practically eliminate this gestation period for us, as players may not be willing to make such substantial investments in a new and unfamiliar gaming model,” he says.
Smaller startups, however, are not the only ones facing difficulties.
Several established e-gaming companies are also concerned that the new GST regime will discourage casual gamers from playing RMG due to reduced winnings. Most firms Business Standard spoke to said they are already experiencing disruptions in their operations in anticipation of the new rules.
Over the past two months, since the announcement of the new GST rules, over 10 gaming startups have shut down, and as many as 500 employees have been laid off, according to Saumya Singh Rathore, co-founder of WinZO, a large vernacular social gaming platform.
“We are also going back to the drawing board, rebuilding the business we had developed over five years and scaled with support from some of the marquee global funds backing us,” she says.
This is not all.
Although the central government has notified the public of the applicability of the new tax regime as of October 1, multiple states have not yet passed the amendment to their state GST Act.
“This creates a conundrum where online gaming companies in such states will have to charge the central GST (CGST) but not the state GST (SGST). In states where the amendment has been implemented, both CGST and SGST will be charged,” says a spokesperson for the All India Gaming Federation.
“Companies will have to deal with the uncertainty brought on by this scenario while already grappling with the significant changes they need to make in their operations,” he adds.
According to Rathore, the new GST regime will likely trigger further consolidation in the gaming sector.
“Young companies are now struggling for survival with cash flow massively impacted, business models challenged, and foreign direct investment and investor interest largely withdrawn. The players in monopoly sitting on large cash reserves become stronger,” she says.
GAME ON REPEAT
· Gamers say the new tax has disincentivised them from playing real-money games, since prize pools have taken a hit
· Players say that professional gaming is not likely to be impacted by the new tax, as the costs and risks are shared when playing with a large pool of gamers
· The brunt of the impact is expected to be seen in casual gaming, which makes up the majority of India’s gamer base
· Multiple states have not passed the tax amendment to their state GST (SGST) Act. Online gaming companies in such states will have to charge central GST but not the SGST, while others have to pay both
· The new tax regime is expected to trigger further consolidation in the sector
