Rattled but not out: Real-money gaming companies gear up to adapt to new GST regime

In 2023, real-money gaming firms faced the heat of the new tax regime, as the government remained steadfast in its decision to impose a 28% GST (goods and services tax) on the full value of player deposits made on online platforms.

The revised tax slabs—which came into effect on October 1—saw ripple effects across most real-money gaming (RMG) firms, with both big and small players, such as Mobile Premier League, Hike Rushing Gaming, and Spartan Poker, resorting to layoffs. Some companies also had to grapple with shutdown, halting of operations, and funding woes.

Long-term impact of the revised taxation

Gaming firms say it might be too early to assess the effects, but they are acutely aware that survival depends on adapting to the new regime as quickly as possible.

“In terms of the tax impact, it is still a little early to say what the next two to three years would look like,” says Sumanta Dey, Head of Corporate Affairs and Public Policy at Head Digital Works, which operates RMG titles such as A23 Rummy.

Then comes the issue of retrospective GST. Over the last year, several companies in the sector have received notices from the Directorate General of GST Intelligence demanding that they pay taxes (28% GST on contest entry amounts) due for several years prior, though the amendment to the GST law came into effect only in 2023.

“There are retrospective GST notices received by gaming companies, but we are confident that these issues will be resolved in the coming months,” says Gaurav Kapoor, CFO of Baazi Games.

As per the amendments to the Integrated GST Act, it is mandatory for offshore online gaming platforms to register with the Indian government and pay 28% tax in accordance with the domestic law. The government–in a bid to tackle unregulated offshore entities–has made it clear that separate rules related to this will be issued.

“RMG companies are collectively engaging with the government to combat unregulated offshore players and potential money laundering activities, safeguarding the reputation of the legitimate RMG industry in India,” says Kapoor.

While gaming companies welcome this move, they say that, for India to be recognised as an ideal destination for international players, the current legislation might have to be amended.

“The government’s announcement to review GST next year aligns with our hope that, given the substantial increase in tax collections, they will be able to rationalise rates. This could provide a vital boost to the online gaming industry. It will also help attract FDI in the sector, which has been negligible post the change in GST scenario,” says Kapoor.

Adapting to new tax slabs

While larger companies have been able to minimise the effect of GST to some extent, smaller firms too have to find ways to absorb the impact.

Going into the next year, gaming companies will have to optimise costs in order to survive.

“There is no ambiguity that smaller firms will be impacted, but nothing to the point of closure yet that we have seen. Smaller firms will also be able to absorb the GST by issuing bonus coins and making tweaks to their businesses,” says Dey.

“While there might be cash outflow, it can be minimised to an extent that they have a longer runway than what was initially expected,” he adds.

It is also important to grow businesses sustainably, notes Puneet Dua, Co-founder and CEO of SportsBaazi, a sports-based RMG app.

“In the sector, the impact of GST has shifted the focus to volume as a key factor for success. Therefore, the importance of being adaptable and scalable cannot be overstated for sustainable growth,” says Dua.

“Those unable to establish a competitive edge or scalability are likely to either be acquired or face closure,” he adds.

While the impact on smaller and micro firms might be more profound, the fundamentals remain intact across the industry, and this will see them through the tough times, say gaming firms.

“There is no erosion in the fundamentals, and therefore, that gives us a lot of optimism, to believe that once this impact from the taxation normalises into the course of business, then we will see the real impact and real growth again, maybe in the mid-term,” says Dey.