Introduction
The implementation of a 28% GST on online gaming starting October 2023 has reshaped India’s gaming industry landscape. Previously taxed at 18% on platform fees, the new rate applies to total deposits, leading to a 412% surge in monthly GST collections. However, this dramatic increase has placed a crushing tax burden on the sector, resulting in significant revenue decline and operational struggles, especially for startups.
The Burden of Navigating 28% GST
Gaming companies now shoulder most of the increased tax burden, often compensating users through incentives to maintain engagement. This has led to:
- Revenue Declines: Industry revenues fell by 20-30% in FY24-25 due to the tax burden.
- Shutdowns: Around 25% of gaming companies have ceased operations in the past year.
- Customer Retention Issues: Rising costs have made customer retention difficult, stifling growth.
The Financial Strain on Online Gaming
A Decline in Investments
The sector, previously attracting ₹22,000 crore in investments since FY19, saw fresh investments drop sharply from $1,200 million in 2021 to just $16 million in 2023.
Impact on Unit Economics
Over 55% of annual revenue is now allocated to navigating GST impacts. This has drastically reduced prize pool allocations, cutting unit economics by over 50% and affecting overall profitability.
Offshore Migration: A Growing Concern
Shift to Unregulated Platforms
The high GST rate has driven users to offshore platforms promising “no GST, no TDS” and higher rewards. Deposits on these platforms have crossed ₹8.2 lakh crore, causing an estimated ₹2.29 lakh crore annual GST revenue loss.
Risks Involved
Unregulated platforms pose risks of:
- Money laundering
- Fraudulent activities
- Lack of consumer protection
These issues highlight the urgency for stricter regulation and a balanced tax regime to safeguard the domestic industry.
Disproportionate Impact on Real Money Gaming
The Real Money Gaming (RMG) segment has faced the harshest brunt, with growth projections slashed from 25% to 7% CAGR over the next five years. This decline contrasts sharply with other gaming segments expected to grow at over 20% CAGR.
Comparing India’s Tax Regime Globally
India’s GST regime for online gaming is among the most burdensome globally, with other countries opting for more industry-friendly tax structures:
- United States & UK: Tax levied on gross gaming revenue.
- Australia: Lower indirect taxes with incentives for industry growth.
A balanced taxation approach could help Indian gaming thrive while ensuring sustainable government revenue.
Conclusion
The introduction of 28% GST on online gaming deposits has significantly altered the industry’s trajectory. While it has boosted government revenue, the resulting financial strain has led to closures, reduced investments, and a migration to offshore platforms.
A sustainable taxation policy that aligns with global practices and supports innovation is critical to reviving the sector and ensuring long-term growth.