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India’s online gaming industry faces a crisis, with top players warning that retrospective GST demands could collapse the sector. Dream11’s co-founder, Harsh Jain, expressed concern over the financial strain caused by the GST hike. The government’s decision to apply the higher rate retroactively to gaming companies has worsened the situation. Jain warned that if the government continues its tax recovery efforts, most gaming firms, including Dream11, may not survive.
Dream11, one of the largest and most successful gaming platforms in India, is among the over 400 companies facing GST demands. The company itself has been hit with a staggering ₹28,000 crore tax liability. Jain highlighted that the entire industry collectively has less than ₹10,000 crore in available funds to meet such obligations, underscoring the immense financial burden imposed by the GST on gaming.
Impact of GST Hike on the Online Gaming Sector
On October 1, 2023, the GST Council introduced a sharp increase in the tax rate for online gaming. The GST on gaming increased from 18% on company revenues to 28% on the full face value of player deposits. The government applied this new tax policy retroactively to transactions dating back to August 2017, adding further financial strain on gaming companies already struggling to cope with the regulatory changes.
Dream11, which reached a valuation of $8 billion in 2021, has been among the most affected companies. Despite seeing significant revenue growth in recent years, the GST on gaming has raised serious concerns about the company’s future. In FY23, Dream Sports, the parent company of Dream11, reported a revenue of ₹6,581 crore, marking a 62% increase from the previous year, and profits of ₹188 crore. However, auditors have expressed concerns about the potential long-term impact of the GST demand, describing it as a “material uncertainty” that could threaten the company’s viability.
The industry at large has also experienced a sharp decline in revenue. According to Jain, government tax collections have surged significantly since the GST hike, jumping from ₹3,000 crore before the rate change to an estimated ₹16,000-17,000 crore under the new structure. However, this increase in tax collections has come at the expense of industry profitability. Revenues for gaming companies have dropped by 30-40%, and profits have fallen by 60-70%, even among the top players. As venture capital investment has dried up, several gaming companies have been forced to shut down, leading to job losses and an uncertain future for the sector.
Need for Regulatory Reform and a Sustainable Taxation Model
Amid these challenges, Harsh Jain has called for the establishment of a dedicated regulatory body for the online gaming industry, similar to the Securities and Exchange Board of India (SEBI) in the financial sector. Jain argues that clear, consistent regulations are crucial to ensure the industry’s growth and prevent exploitation by bad actors. Despite industry calls for regulation, the government has yet to implement comprehensive measures, leaving the sector in a state of uncertainty.
Jain’s comments reflect concerns raised by other industry leaders pushing for clearer guidelines and a regulatory framework for two years. Jain noted, “In any market, people will act wrongly until regulators step in,” urging swift government action to create a strong regulatory environment for the sector’s future.
In addition to regulatory reform, Jain has urged the GST Council to reconsider its current approach to taxation. He advocates for a model based on Gross Gaming Revenue (GGR), which is globally recognised as a fairer tax approach. The current system levies GST on total player deposits, which doesn’t reflect the companies’ actual revenue. In contrast, GGR focuses on the platforms’ actual earnings, making the tax burden more manageable for gaming firms.
Offshore Gaming and Tax Evasion
Jain has also raised concerns about offshore gaming companies operating in India. He claimed that many of these entities evade government taxes and promote betting rather than skill-based gaming, affecting the domestic industry.
The Road Ahead for India’s Online Gaming Industry
As the online gaming industry faces the consequences of the new GST regime, the government is under pressure to revise its approach. Stakeholders are urging a balanced regulatory framework to support growth and compliance. This would ensure that gaming companies thrive without facing unsustainable tax demands.
With the future of the industry hanging in the balance, industry leaders are hoping for a swift resolution. The call for a new, fairer tax structure and clearer regulatory oversight is becoming louder as the sector seeks a way forward that will allow it to continue contributing to India’s economy and digital landscape. However, whether the government will heed these calls and take action remains to be seen.
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