MSME businesses in the gaming sector are reeling under the burden of 28 percent goods and services tax (GST) with some companies being compelled to downsize while others are shutting shop.
On the other end of the spectrum, larger players are grappling with losses by implementing as much as 50 percent reductions in marketing expenditures. This is only the beginning, said experts, adding, there will be more pink slips, restructurings and shutdowns.
A vast majority of online gaming companies fall within the MSME sector. “With over 400 percent increase in GST liability under the new tax regime, many entrepreneurs who had innovated in the sector would be disproportionately impacted with companies paying more in taxes than they would be generating in revenue,” said an All India Gaming Federation spokesperson.
“We believe this trend will only increase in the coming months,” the spokesperson said.
End of the road
One of the early casualties in the space was the RMG platform Quizy. The tax burden led to a decline in user engagement and loyalty, forcing it to shut shop. This was followed by Mobile Premier League laying off 350 employees. Then Spartan Poker laid off 125 people.
It doesn’t stop here. Some are even looking for a pivot. Real money gaming platform Fantok announced a temporary suspension of operations.
“The recent imposition of a 28 percent GST on the entire realised amount, coupled with high TDS and issues related to payment gateways, has further compounded these challenges. Additionally, the substantial cost of customer conversion has placed a significant strain on our resources,” they said in a social media post. The company will be using the time off to explore a pivot that aligns with the evolving regulatory landscape and doesn’t hamper user experience.
Maintaining user experience has become challenging due to increased costs and reduced traffic.
Saumya Singh Rathore, Co-Founder of WinZO Games, elaborates on the impact.
“The taxable value of 28 percent, when combined with changes in valuation from commissions earned by platforms shifting to deposits made, represents a staggering 400 percent increase. This change is particularly detrimental to the latest innovation in the continuous gameplay model of fast-growing casual games. Approximately 70 percent of deposits in this model are distributed as winnings, making it highly vulnerable,” she said.
This change places companies in a mode of significant financial strain and losses. The most impacted entities are innovative models that emerged after 2021, often startups and MSMEs, placing them at risk of substantial losses and potential extinction.
Big players hit
“Even more established companies are resorting to cost-cutting measures to maintain their financial stability. This includes reducing user acquisition budgets, marketing/advertising expenditures, and unfortunately, downsizing their workforce. Such actions could prove detrimental to the overall ecosystem, as startups would perish and bottom fishing would eventually lead to monopolistic play,” Rathore added.
As per business intelligence platform, Statista, by the financial year 2022, India’s expanding gaming market had grown to $2.6 billion. At a CAGR of 27 percent, industry reports suggested that this market was likely to be worth $8 billion by financial year 2027. Experts doubt this number can be achieved given the present circumstances.