The real money online gaming companies continue to grapple with layoffs and shutdown of operations after the government’s move to levy a 28 per cent goods and services tax (GST) on online gaming at full face value.
Latest is real money gaming app Fantok has announced a temporary suspension of its operations and has become the latest casualty of the GST Council’s decision to retain a 28 per cent tax on online real-money games.
On July 11, the GST Council announced the decision to levy a 28 per cent tax on the full face value. In another meeting on August 2, the council clarified that the taxation will be applicable on the deposits made by players to participate in a game, thus avoiding repetitive tax when they use their winning money to play more games.
Earlier this month, unicorn online gaming company Mobile Premier League (MPL) laid off 350 employees — nearly 50 per cent of its workforce. The company’s co-founders Sai Srinivas and Subh Malhotra said that the new rules will increase the tax burden by 300-400 per cent.
While Spartan Poker laid off 125 employees and Hike Rush Gaming Universe also reduced its workforce by 22 per cent.
Other firms — crypto gaming platform One World Nation and gaming startup Quizy have temporarily shut their operations.
The online skill gaming sector with a $20 billion enterprise valuation, $2.5 billion in revenue, and $1 billion in annual taxes, is set to grow by 30 per cent CAGR to reach $5 billion in revenue by 2025, according to industry estimates.
India’s gaming industry attracted $575 million in investments between 2014 and 2020. However, in 2021 and Q1 of 2022 alone, $1.7 billion was invested in the online skill gaming sector.
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Industry body All India Gaming Federation (AIGF) noted that majority of online gaming companies fall within the MSME sector. With over 400 per cent increase in GST liability, a large section of the companies would be disproportionately impacted as they would pay more in taxes than the revenue it generates.
“Since the decision, multiple companies have announced their closure or widespread layoffs and we believe this trend will only increase in the coming months,” a AIGF spokersperson added.
It said that in the current scenario, there will be a severe dampening of investor sentiment, which would also reduce the capacity of companies to innovate and build newer, diverse products.