From striving to be recognised as purveying games of skill to dealing with state-wide bans despite esports being adjudged a legitimate sport to competing with foreign firms looking to grab a piece of India's gaming pie, it has not been all fun and games for the Indian gaming industry, especially in its attempts to create a cohesive ecosystem for the segment.

And if the government does in fact follow through with the GST Council's recommendation that a 28% tax be imposed on all forms of gaming, it may well be the straw that finally breaks the camel's back.

As per media reports, the GST Council will meet virtually on August 2 to discuss the legal amendments needed to implement the levy on online gaming.

If imposed, gaming and gaming media organisations' advertising expenditures and media plans will suffer significantly, and the impact will reverberate throughout the entire gaming ecosystem, as well as the ancillary industries that operate alongside.

Karan Gandhi, Co-Founder and CRO of PokerDangal, says the 28% GST on the full-face value will adversely impact the entire ecosystem, including media spends. "The additional tax burden might shrink the active user base of the companies and potentially reduce the funds available for advertising and media by 60-70% or more,” he noted.

It also doesn’t help that there was a distinct lack of clarity in the wording of the recommendation, adding to the confusion.

Word Play

“It is imperative to first understand that the 28% GST will apply to iGaming, including Real Money Gaming (RMG), fantasy sports, teen patti, rummy and poker that are under gambling or betting in the rest of the world. Contrary to some media reports, this GST is neither applicable nor will it have any impact on the video-gaming industry or the Esports industry,” clarified Lokesh Suji, Director, Esports Federation of India & Vice President of the Asian Esports Federation (AESF).

“Ideally, instead of the umbrella term ‘online gaming’, the GST council should have used the more specific term ‘iGaming’ or even ‘online real money game’ which is defined in ‘The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules’ to avoid confusion,” Suji added.

The application of the ‘game of skill’ and ‘game of chance’ theories, which only exist in India, are not relevant within the Esports ecosystem. There is no impact of this GST on both the video games and esports industry, including video gamers (approximately 400 million) and esports athletes.

Several categories of online gaming emerged in the past few years, and India is subsequently leading the world in mobile game downloads per Google store, according to the recent e4m – GroupM ESP Online Gaming Report 2023.

The report also said that with a compound annual growth rate (CAGR) of 27%, the gaming market in India will expand from $2.6 Billion (Rs 20,800 Cr.) in the fiscal year 2022 to $8.6 B (Rs 68,800 Cr.) in FY2027, with higher growth percentage from the second tier Indian cities than metro cities like Delhi and Mumbai. This is a multibillion-dollar industry, which is working as a catalyst for the growth of other industries like electronics. Thus, brands also see it as a huge marketing platform to lure the millennial and GenZ crowd.

The gaming industry, in an open letter entitled ‘Death by a 1000 cuts’ with the subject line of ‘REQUEST TO SAVE THE INDIAN ONLINE SKILL GAMING INDUSTRY: 1 MILLION INDIAN JOBS, 500 MILLION INDIAN USERS AND $2.5 BILLION INVESTMENTS’, 127 signatories outlined 10 points by which the proposed move would detrimentally impact Indian gaming.

The letter, in part, stated “The online skill gaming platforms are akin to other digital internet service platforms in the nature of ecommerce websites. The core characteristic of such platforms is that they charge a fee for providing the platform as a service. Similarly, we provide a platform where players can compete with each other in Games of Skill by paying a small platform fee. It is an industry-standard in the tech sector that a platform levies GST only on the portion of the service fee that it charges from a user.”

Numbers Game

According to a recent analysis by Deloitte on the GST revision, it has been estimated that a shift from the current 18% on Gross Gaming Revenue (GGR) to 28% on Contest Entry Amount (CEA) may result in a degrowth of the industry and parallel reduction of GST revenue collection. The report says that the degrowth of the industry may also result in significant job losses and reduced investments, making small industry players (e.g. gaming startups) unviable.

Deloitte in the report also mentions, “To cope with the increased tax liability, the industry may have to reduce costs, which will have cascading effects. Legitimate industry revenue would shrink by around 33x to 43x times the current levels within the first five years. This is expected to result in lower investments in R&D, decreased innovation, and reduced spending on marketing and IT services. Ancillary industries associated with the gaming sector may also be adversely affected.”

Rohit Agarwal, Founder and Director, Alpha Zegus, adds that brands will have to figure out new marketing communication to convince the audience to spend more on their platforms. Indeed, this will impact industry players like Dream11, which recently signed on as the main sponsor of the Indian cricket teams’ jerseys after Byju’s was forced to pull out in the light of its financial woes.

Vinit Godara, Co-Founder and CEO, MyTeam11, another major player said, "A successful IPL earlier this year gave us a lot of hope and ambition looking forward to the festive season and the upcoming Asia Cup and World Cup, but with the sudden announcement of the new policy it has not only dampened our spirits but have also led us to stop all digital advertisements as well.”

He adds, “Digital contributes to more than 50% of our marketing spends and pausing campaigns on Digital platforms will impact new user acquisition and growth. However, unless there is more clarity on the decision going forward, we have been left with no choice but to err on the side of caution.”

It's not all gloom and doom though. “At JetSynthesys, we are in the video game industry, which even if covered, will be much less affected since it will only impact in-app revenue which we receive through the Android and IOS stores, which are at 18% GST today," says Rajan Navani, CEO and Founder, JetSynthesys, adding, "Revenue from Indian gamers also comes from advertising and rewarded videos as part of monetization, which is unaffected. Also, we have leadership in the esports sector which brings together professional gamers, also called eathletes, which stay relatively unaffected by the change in GST.”

Rohit Bansal, Founder, Super4, says that overall, the proposed GST rate would have negative consequences for the gaming industry's development and its contribution to the economy. “By burdening gaming companies with exorbitant taxes, the government would impede their growth potential and prevent them from capturing their projected market share. This, in turn, would limit job opportunities, hinder advertising and media sectors, and ultimately hinder the overall economic progress of the gaming ecosystem in India.”