The gaming industry in India is experiencing a significant shakeup due to the government’s decision to implement a 28 percent Goods and Services Tax (GST) on the real-money gaming sector. Rush Gaming Universe, a casual skill gaming platform under Kavin Bharti Mittal’s Hike, is now facing the repercussions.
The platform has laid off approximately 55 employees, with 24 of them being non-full-time workers. This reduction constitutes about 22 percent of the company’s total workforce. Founder Kavin Bharti Mittal expressed that despite the business being in its prime, the substantial increase in GST is a severe blow that the company must absorb.
Rush Gaming Universe isn’t the only company affected by the GST hike. Mobile Premier League (MPL), a prominent player in the esports and skill gaming sector, has also undergone layoffs. MPL has let go of 350 employees, which is about half of its workforce in India. This industry-wide trend of layoffs underscores the challenges companies are facing due to the 28 percent GST.
GST Decision and Industry Response
The GST Council’s decision to stick to the 28 percent GST on the total value of real-money games, without distinguishing between skill-based and chance-based games, has raised concerns across the gaming industry. Industry stakeholders argue that this approach could lead to a staggering 350 to 400 percent increase in companies’ tax burdens. Such a financial hit could severely impede the sector’s growth trajectory.
In an attempt to provide some relief to affected firms, the council recommended that GST be levied on the total deposits made by users to play real-money games, rather than on each individual bet. This change aims to prevent double taxation and reduce the immediate impact. Furthermore, the council has agreed to reevaluate the levy six months after its implementation.
Challenges to Business Models
The 28 percent GST on deposits poses a particular threat to the fast-growing casual gaming sub-sector. Saumya Singh Rathore, co-founder of WinZO, a platform operating in this segment, highlighted that players often withdraw around 70 percent of their deposits as winnings due to the continuous and quick gameplay model. With thin profit margins in this format, the proposed GST could surpass operating margins, potentially pushing companies into a loss-making mode.
Sachin Yadav, co-founder of Quizy, a real-money based gaming startup, took to LinkedIn to announce the shutdown of the company. Yadav attributed this decision to the challenges posed by the recent GST changes. For smaller startups like Quizy, the higher tax rates create a situation where competing with established players becomes nearly impossible.
Rush Gaming Universe’s performance in the market exemplified the potential of the gaming industry in India. The platform reported crossing the Rs 2,500 crore annualized gross revenue milestone within two years of its launch. Over the past year, it achieved a fourfold growth and reached operational profitability by October 2022, boasting 5.2 million monthly active users.
It’s important to consider the broader consequences of these developments. The casual gaming sub-sector, a significant contributor to the online gaming market in India, is under threat. Industry experts like Saumya Singh Rathore have expressed concern about the potential harm to innovation and the vibrant gaming ecosystem that the country has fostered.
The Perils of Higher GST on Gaming Companies
The recent GST decision has sent shockwaves through India’s gaming industry. While the government’s intentions might have been to boost revenue, the 28 percent tax on the total deposits for real-money games is causing substantial upheaval. Companies like Rush Gaming Universe, MPL, and Quizy are just a few examples of businesses navigating the challenges posed by this tax hike.
The gaming sector’s unique dynamics, including thin profit margins and the quick continuous gameplay model, make it particularly susceptible to such tax measures. The GST Council’s decision could lead to severe financial strains, potential shutdowns, and a decline in innovation in the industry. As stakeholders and experts continue to voice their concerns, it remains to be seen whether the council’s promise of reevaluation in six months will offer any reprieve. In the meantime, the industry is left to grapple with the uncertainty and repercussions of this unexpected turn of events.