India's Online Gaming Sector Faces Revenue Decline amidst GST Hike

The report, based on a survey of 12 companies, highlights the significant impact of the tax policy

More than half of India's online gaming companies have experienced stagnant or declining revenues following the government's imposition of a 28% Goods and Services Tax (GST) last year, according to a report by EY and the US-India Strategic Partnership Forum (USISPF). The report, based on a survey of 12 companies, highlights the significant impact of the tax policy on the burgeoning industry.

Until October of the previous year, online gaming companies were subject to an 18% GST on platform fees or commissions from user pools. However, the GST Council's clarification last year mandated a 28% GST on the entire entry fee paid by users, drastically increasing the tax burden for gaming startups. This tax is applicable on all bets placed, regardless of whether the game is one of skill or chance. The survey revealed that only five out of the 12 companies managed to grow their revenues, while seven reported stagnant or declining revenues. In severe cases, revenue decline reached up to 50% for two companies. This contrasts sharply with the sector's previously rapid growth.

The report also noted several adverse effects of the GST hike, including funding challenges, reduced growth, job losses, and increased uncertainty. A third of the companies now see GST consuming 50-100% of their revenue, compared to around 15% previously, and forcing some to operate at a loss. Four companies indicated they might exit the sector without tax normalization, and three are seeking buyers due to equity capital depletion. Major firms like Gameskraft and Delta Corp have contested substantial GST demands in court, further complicating the industry's landscape, especially with potential retrospective tax applications threatening smaller companies' finances.