The 28% GST will kill India's gaming industry: Here's how
What's the story
Online gaming is one of the fastest-growing internet businesses in India. However, that may come to a halt after the Indian government's recent decision to increase indirect tax on online gaming.
The Goods and Services Tax (GST) Council decided to levy a 28% GST on funds collected by gaming firms.
The decision will have wide-ranging repercussions affecting the industry.
Context
Why does this story matter?
GST on gaming, casinos, and horse racing is not unexpected. The council had agreed to impose GST on them during its last meeting itself.
What is unexpected and shocked the gaming industry is the number. The online gaming industry has seen consistent growth over the past few years, with multiple profitable companies.
The council's decision could change that drastically.
Industry
Online gaming industry was on track to $2bn in revenue
Before we get into how the new GST can kill legitimate online gaming in India, let's see the industry's track record.
In the last five years, the Indian gaming industry raised $2.8 billion from domestic and global investors.
The revenue from online gaming grew 35% in 2022 alone and was expected to cross $2 billion mark by 2025.
GST
Players will bear the burden of the tax
The 28% GST will affect the total prize pools or face value of online games. In other words, the money gaming firms collect from consumers.
The burden of the tax will be borne by consumers. This will discourage people from playing.
It may also force them to search for offshore and illegal platforms that pay no tax.
Layoffs
A series of layoffs are inevitable
The high GST will also mean smaller pots in games. The GST is in addition to the platform fee and TDS on winnings, which will make online gaming in India pointless.
As players move away from gaming platforms, companies will have to rethink their strategy to keep themselves afloat.
We are staring at a series of layoffs in India's online gaming industry.
Competition
Foreign competitors will overtake Indian companies
The online gaming industry believes the government's decision will hamper India's interests. It not only puts several successful Indian start-ups in harm's way but also benefits companies from other countries.
Online gaming is a borderless industry. The extra tax burden in India will help companies operating from other countries.
This will spell the death of the domestic gaming industry.
Skill-based
Gaming platforms have lost the incentive to develop new games
The GST Council argued that there should not be any difference between "game of skill" and "game of chance," closing a door that allowed companies to legitimize their offerings.
The industry, on the other hand, thinks there should be a distinction between them.
Now, with the GST, gaming platforms have lost the incentive to develop new games, which will affect their competitiveness.