Explore the impact of the 28% GST on online gaming and discover its potential effects on the industry’s growth. Read on to understand the implications of this tax and its significance for the future of online gaming.
The online gaming industry is thriving, and it appears that the government has developed a keen interest in capitalising on the boom by imposing taxes on this flourishing sector.
In the 50th GST Council meeting, a decision was made to impose a 28% tax on the full-face value of bets in online gaming.
Now, it is certain that the gaming companies will take a hit. But how much? Let’s find out.
What’s Happening?
On the 11th of July, 2023, the GST Council made an announcement that stirred up the online gaming industry. They introduced a uniform tax rate of 28% on online gaming, marking a significant increase from the previous GST rate of 18% on revenue.
The Finance Minister Nirmala Sitharaman, shed light on the decision, emphasising that the intention was not to harm the industry. But, she questioned whether the industry, which includes casinos and horse racing, should receive more support and incentives compared to essential goods.
She further explained that the goal was to simplify processes, eliminate complexity, and promote transparency.
Interestingly, there is a twist in this tale. Previously, online gaming players were required to pay taxes based on gross gaming revenue (GGR). But, this time, the taxes are a bit different.
How Will The Online Gaming Segment Be Taxed?
Suppose an online gaming platform charges an entry fee of Rs 200 to join the game. From this amount, the company cuts a certain amount as their gross gaming revenue (GGR) and the remaining amount is transferred to the prize pool. Previously, if the company kept a GGR of Rs 50, they were supposed to pay a tax of 18% on it, resulting in Rs 9 in taxes.
But, under the new provision, the taxes will be levied on the entry amount. In this case, 28% tax will be levied on Rs 200, so the company must now pay Rs 56 in taxes! That’s a drastic hike in taxes.
Moreover, this change will reduce the GGR of the company and the prize pool.
How Will it Impact Online Gaming Companies?
After announcing the 28% GST rate, Delta Corp and Nazara Technologies experienced a blood bath on the same day.
According to Business Standard, on 11th July 2023, Delta Corp witnessed a substantial decline of 28%, with its stock falling to Rs 178.20 on the BSE during intra-day trade. Similarly, shares of Nazara also experienced a decline, dropping 14% to Rs 605 in intraday trade on the same day.
Nazara Technologies clarified that this tax would apply only to its business’ skill-based real-money gaming segment, which accounts for 5.2% of its overall consolidated revenues for FY2022-23, as per Business Standard. This clarification indicates that while a portion of Nazara’s revenue will be subject to the increased GST rate, the impact on the company’s overall financials may be limited due to the specific segment to which the tax applies.
What’s Next?
According to Roland Landers, the CEO of the All-India Gaming Federation (AIGF), the significant increase in GST rates will discourage both domestic and foreign investors, making the domestic gaming ecosystem less attractive as an investment destination.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The companies mentioned are for information purposes only. This is not an investment advice.
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