More than half of online gaming companies in India saw their revenues stagnate or decline after the government imposed a 28% GST last year. This finding comes from a report by EY and the US-India Strategic Partnership Forum (USISPF), which surveyed 12 companies.
Before October, online gaming didn’t have a specific tax rate, and companies usually paid 18% GST on the platform fee or commission from user deposits. The report, titled “Impact of new GST law on skill-based online games,” highlights the challenges faced by the sector after the new tax rate was applied.
Gaming Companies’ Revenue Decline After 28% GST Norm
A recent report shows that more than half of online gaming companies in India experienced stagnant or declining revenues after the government introduced a 28% GST last year. The report by EY and the US-India Strategic Partnership Forum (USISPF) surveyed 12 companies.
Before October 1, 2023, these companies paid 18% GST on their platform fees. Since then, they have had to pay 28% GST on the total deposits made by users, significantly increasing their tax burden. Of the 12 companies surveyed, only five saw revenue growth, while seven faced declining or stagnant revenues. The revenue drop was as much as 50% for two companies. This is a stark contrast to the industry’s previous rapid growth. The new tax rate applies to all online games, whether they are games of skill or chance.
New 28% GST Increases Tax Burden and Causes Job Losses in Online Gaming Sector
This tax hike has also affected employment in these companies. Out of 12 companies surveyed, 10 faced major challenges in job creation. Four companies stopped hiring but didn’t lay off any staff. However, one-third of the companies had to lay off up to 50% of their workers, one laid off more than half of its employees, and another shut down completely.
The report highlighted that the online gaming sector, which has created 100,000 jobs and was expected to triple in the coming years, faces significant job losses. This is a concerning sign of the new GST rate’s negative impact on the industry.
Online Gaming Companies Recommend Fairer GST on Net Deposits to Support Growth
Online gaming companies suggest that the best way to tax their sector is based on net deposits, the amount that stays with the platform for their service. In a survey by EY and the US-India Strategic Partnership Forum (USISPF), seven out of 12 companies agreed with this approach. Of these, three recommended a 28% GST on net deposits, while four preferred an 18% GST. Bipin Sapra, a tax partner at EY India, explained that the current 28% GST on total deposits harms industry growth. He recommended that GST should be applied to either the gross gaming revenue or the platform fee instead. This adjustment would promote sector growth and prevent revenue leakage.
Sapra emphasized that the true taxable value is the platform fee, which covers the services provided by the gaming platforms. The rest of the money is used to fund the prize pool for winners. This method would recognize the actual value generated by the platforms and help the industry thrive.
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