New GST regime on gaming threatens sector viability: Report
Decreased funding, reduced margins, and stagnant revenue growth are also dampening hiring efforts and employee retention within the industry.
The latest GST (Goods and Services Tax) amendment will significantly wipe off top-line growth for gaming companies in the pay-to-play model, according to a joint report by Ernst & Young (EY) and the US-India Strategic Partnership Forum (USISPF).
The report follows the GST Council’s decision to levy a 28% tax on the full value of bets for online gaming companies, casinos, and horse racing firms, in October 2023. However, at the upcoming GST Council meeting on Jun 22, 2024, there is scope for a review.
The report suggests an amendment in the valuation mechanism for online money games to levy GST from the current “full-face value of total deposits” to GGR (gross gaming revenue)/platform fees which is the amount retained by online gaming platforms for operating a game.
The report highlighted a ripple effect from the GST directive which has resulted in a slow funding season, lower toplines and reduced growth trajectories for the company.
Gaming companies reported a complete withdrawal of global marque investors just as the new GST regime came into effect, furthermore, no capital has been raised by gaming companies in the pay-to-play format since October 1, 2023.
According to the report, the GST cost constituted about 15.25% of revenue for these companies earlier, but with the latest amendment, GST cost now accounts for 50-100% of the revenue for nearly 33% of companies.
The new regime is turning out to be more detrimental for casual games where the new tax format is directly threatening the business viability of the format. “Post GST amendment, most companies have either turned into loss-making entities or are bleeding capital,” stated the report.
According to the report, nearly half the companies in the sector are currently looking at stagnant revenues or shrinking topline growths, with 25% experiencing growth declines of up to 50%.
Muted funding, lower margins, and stagnant revenue growth are also curbing hiring and employee retention in the industry, with many resorting to layoffs and shuttering organisations to stay afloat.
Edited by Affirunisa Kankudti