GST Hike May Cut Online Gaming Revenue by 50% in Six Months

It appears industry stakeholders were correct, as India’s online gambling industry looks to adapt to the significant revenue drop experienced over the last 6 months due to the imposed 28% GST. Among the expected changes is a reduction in online gaming companies’ marketing budgets, which are anticipated to be cut in half.

The 28% GST, which was put into effect in October 2023, applies to the entire amount of bets placed on online games, rather than just the net winnings (which is calculated by subtracting the amount won from the amount wagered).

In essence, this means that gamers must pay a 28 percent GST on the entire sum they bet, thereby elevating the expense of participation. For example, when a player bets Rs 100, they immediately find themselves with Rs 28 less for gaming because of the GST, in addition to any fees charged by the platform. Consequently, this diminishes the potential winnings from casino bonuses which would be otherwise more lucrative.

New GST Rate

Back in August, the Goods and Services Tax (GST) introduced the 28% GST rate on online gaming, horse racing and casinos in an attempt to enhance accountability, transparency and fair taxation across the sector. The new rate was met with scepticism, with Goa, Sikkim and Delhi all raising concerns over the rate’s effect on the industry. Despite this, the Council opted to move forward and implement the new rate. 

Setbacks

Now, a little over 6 months since the implementation of the new GST regime, the online gaming industry finds itself in turbulent waters. What was once envisioned as a year of growth has turned into a period of significant losses, casting a shadow of uncertainty over many gaming companies’ futures. The impact of the increased tax burdens imposed by the GST is keenly felt, with some monthly tax obligations ballooning to four times their original amount. This heavy tax burden, with almost 70% of revenue being diverted towards GST, has severely constrained the financial flexibility of gaming operators, leaving them with scant margins for sustaining their operations.

Anticipating a near 50% drop in revenue, even the most successful firms are grappling with the daunting prospect of financial losses. In a bid to mitigate the impact of the GST on users’ gaming expenditures, many gaming companies are attempting to absorb a portion, if not all, of the tax burden. This strategic move aims to prevent users from reducing their gaming activity due to increased costs, aligning with the predictions outlined in Lumikai’s October 2023 report.

However, the decision to absorb additional financial losses has forced many smaller gaming operators to shutter their operations entirely. Those who persevere face the harsh reality of implementing severe cost-cutting measures, including slashing marketing budgets. These cuts represent a significant setback, as marketing initiatives play a crucial role in maintaining visibility and attracting users in a crowded online gaming landscape.

As operators grapple with diminished resources and intensified competition, the negative ramifications of these austerity measures are becoming increasingly apparent. Without the support of robust advertising and marketing campaigns, gaming operators risk fading into obscurity amidst the cacophony of competing offerings. Furthermore, the absence of a GST burden for offshore gaming companies provides them with a competitive advantage, luring players with the promise of tax-free gaming experiences.

Lack of Funding

Funding in India’s gambling sector has also experienced a 75% decrease year-on-year in 2023, according to Lumikai’s report. Cost-cutting measures are rampant, affecting everything from promotional budgets to office spaces, as capital in the market remains scarce. Many fear that the next GST meeting will offer little to no relief.

Moreover, reports indicate a significant increase in GST collection from online gambling since October, soaring from Rs 225 crore monthly to around Rs 1,200 crore. Industry representatives have issued warnings that several companies may even exit the market, severely impacting its survival.

Furthermore, with losses at an all-time high, new players are unlikely to enter the picture, and the industry cannot thrive, with only a few struggling to hold on. Many companies have voiced concerns about the lack of assurance, stating that if the GST rate is not revised, they will simply cut their losses and move on.