A Year of 28% GST on the Online Real Money Gaming Sector: Challenges and Concerns

Times Now NewsNovember 29, 2024

GST on online gaming was a major point of discussion in the GST council, the debates on changes in the rate of tax and value of supply went on for over 2 years and the council finally made a decision in July 2023. The amendments came into effect on October 1, 2023, imposing a 28% tax on total deposits in the online gaming sector, up from the previous 18% tax on platform fees or gross gaming revenue. While this change has led to a dramatic increase in government revenue from online gaming, with monthly GST collections surging from Rs 250 crore to Rs 1,100 crore—a jump of 412%, it has resulted in a steep rise in the tax burden on the online gaming industry—by as much as 350-400%.

When the GST council announced the amendments, the industry had voiced its concerns on the impact the increased tax would have on the industry and disproportionate impact especially on the start-ups. The GST Council was also to review the decision 6 months from October’23 to assess the tax revenues and the impact on the industry. The 54th GST council reviewed the decision and has decided to continue with the new tax regime. In this context, here’s an indepth analysis on the impact of 28% GST on the real money gaming sector - one year after the amendments.

Navigating the GST increase

This tax burden is largely being shouldered by the gaming companies to compensate the users in various forms for the increased tax, placing immense pressure on the sector. In FY24-25, the sector experienced a significant degrowth, with projected revenues after accounting for the GST burden dropping by 20-30% as per industry sources. Industry experts estimate that approximately 25% of real money gaming companies have shut down over the past year, and many others are struggling with customer retention, and overall sustainability.

The Growing Financial Strain on the Industry

The online gaming sector, which is still in its early stages of growth, is facing an existential crisis. In stark contrast to the Rs 22,000 crore of investments attracted by the industry since FY19, there has been a notable decline in fresh investment over the past year from over USD 1200 million in 2021 to about USD 16 million in 2023. This is a significant blow to an industry that had previously been growing at a compound annual growth rate (CAGR) of 25%. An alarming 55% of the industry’s annual revenue is estimated to be allocated toward navigating the GST related impact, severely impacting both financial health and growth prospects. The unit economics have dropped by more than 50% as less money is available for the prize pools.

The Risks of Offshore Migration and Growth of Domestic Gambling Platforms

One of the most pressing concerns arising from the new tax regime is the migration of Indian users to offshore-based, illegitimate betting and gambling platforms. These platforms have been advertising ‘no GST no TDS’ to Indian users claiming to offer better prize money. These platforms, which operate outside the purview of Indian regulations, have reportedly received deposits worth Rs 8,20,000 crore from India. This shift to unregulated platforms results in a significant GST revenue loss—an estimated Rs 2,29,600 crore annually—directly impacting the public exchequer. The migration also poses serious risks, including money laundering and other illegal activities, as the Directorate General of GST Intelligence (DGGI) highlighted in its annual report.

Disproportionate Impact on Real Money Gaming (RMG)

Unlike other segments of online gaming, the RMG sector has been disproportionately affected by the new tax regime, facing significant challenges in terms of growth and sustainability. The industry’s ability to innovate and scale has been hindered, and the added financial strain is proving unsustainable for many players in this space. According to a recent report by Lumikai, RMG’s growth rate for next 5 years is projected at 7% compared to 25% prior to GST amendments, while other segments of gaming are expected to grow at CAGR of over 20% for next 5 years.

India's Online Gaming Taxation in Global Context

India's new GST regime for online gaming now ranks among the most burdensome indirect tax regimes globally. Countries like the US, UK, Australia, for instance, have significantly lower tax for online gaming, which levy tax on gross gaming revenue providing a more favorable environment for industry growth. This stark contrast highlights the need for a more balanced approach to taxation in India.