Following the imposition of 28 percent of the Goods and Services Tax (GST) on gaming startups by the Indian government in 2023, over 50 percent of the firms witnessed huge setbacks in the form of declining revenues, as per a report released by Ernst and Young Private Limited (EY) and the US-India Strategic Partnership Forum (USISPF) based on their survey of 12 gaming companies.
The gaming startups didn’t have a specific tax rate, and companies typically paid 18 percent GST on the platform fee or commission until last October. However, when the GST Council implemented 28 percent GST on the entry fees paid by users, especially on bets placed in online games, the majority of startups witnessed a sharp downfall in revenues. Out of 12 firms, only five recorded revenue growth, while seven companies witnessed stagnation, as per the report.
Despite online gaming platforms having multiple revenue-generating alternatives such as in-app purchases, in-game advertisements, and subscription-based pay-to-play models, the new GST amendment has caused a lot of issues, such as funding challenges, reduced growth, job losses, and heightened sectoral uncertainty.
Additionally, in regards to job displacement, one-third of companies laid off around 50 percent of their workforce. About four companies have ceased hiring as they have not been able to attract capital and will move out unless the taxes are normalised while a company has to shut down its operations.
Several online gaming startups, including Gameskraft, Delta Corp., and others, received notices to pay INR 1.12 lakh crore GST, following which many have moved courts challenging the tax notices.
Finally, as per the sources, GST creates a severe dent in the finances of smaller online gaming companies, especially startups.
