Impact of new GST law on skill-based online games

Steep GST rates for online skill-based gaming could impact future of Indian gaming sector. 

As a sunrise sector, India’s skill-based online money gaming industry could play a crucial role in making India a US$5 trillion economy by 2025 (source). However, the Indian government’s decision to levy GST on the total money deposited with the pay-to-play gaming platforms might have impacted the sector’s ability to garner funding and generate growth and employment over the past year. 

Industry analysis of new GST regulations for online games

Despite its promising trajectory, the industry currently stands at a critical juncture faced with challenges exacerbated by the recent GST amendments and regulatory ambiguities.

The USISPF survey found companies facing challenges in raising funding, carving out margins and even stalled revenue since the GST rates were hiked. This change resulted in a higher tax burden for companies operating in this sector, many of which had to absorb the increase in tax to sustain their operations.

Stalled revenue growth

Of the companies surveyed, 42% reported revenue growth following the GST amendment, while 58% faced revenue declines or stagnation, including two companies with a significant 50% decrease in revenue. This represents a notable shift from the industry's prior trend of exponential growth and highlights the significant financial impact of GST on the online gaming sector.

Job Erosion

The hike in GST, absorbed by the companies, led to reduced margins and triggered a cascade of workforce reductions, including layoffs, hiring freezes, and in some cases, complete cessation of operations, affecting employment across the majority of these companies.