[ad_1]
While new goods and services tax (GST) guidelines have resulted in users paying considerably more on their earnings than in pre-covid times, huge retrospective tax liability awaits the businesses.
The GST Council has demanded ₹1.12 trillion tax payments retrospectively. However, as the notices await adjudication, the final figure has not yet been determined under the provisions of Central GST Act.
Delhi-based lawyer Dhruv Garg, who is a technology law and policy expert, said 2023 and 2024 have been a mixed bag for the industry. The biggest challenge at present is all the pending show-cause notices against multiple skill gaming companies, he added.
The Directorate General of GST Intelligence had issued a show-cause notice to Gameskraft Technologies Pvt. Ltd, that operates RummyCulture and others in September 2022, with GST demands of ₹21,000 crore, with penalties and interest. After this, other companies, including Sporta Techologies Pvt. Ltd, Dream11 parent and PlayGames24x7, My11Circle’s parent, also received hefty show-cause notices.
“At this point, some companies are moving high courts as well as the Supreme Court and some even managing a stay or interim relief. The industry is expected to gain clarity on the final legal stance once the apex court makes a decision on the Karnataka GST judgment in the Gameskraft case,” he said.
Driven by fantasy games, poker, and others, the online gaming market grew at a 28% compound annual growth rate over FY20-23 to ₹16,428 crore, but is expected to slow down to 15% CAGR till FY28, a recent EY report said. The real money gaming sub-segment held an 83% share in FY23, but despite its dominance, the segment’s revenue share may fall sharply to 75.4% by FY28, due to the legal amendments.
This industry can generate ₹6,500-6,800 crore in direct taxes and ₹75,000-76,000 crore in indirect taxes (GST) for the exchequer during FY24-28, it added.
By August this year, gaming companies started urging the government’s GST council to rollback its decision stating that they face a critical challenge due to the 28% GST imposed on the entire entry fee, instead of just the platform fee.
This new tax structure is now levied on the entire amount players deposit instead of just platform fees. It leads to a smaller prize pool, a lower winning amount for players, and decreased motivation to participate, potentially driving them towards illegal offshore betting platforms.
This move has meant that there is an about 50% reduction in a player’s winning potential after six games under the new regime, compared with the previous one.
The industry witnessed significant growth in 2022, with transaction-based game revenues exceeding ₹100 billion.
Some are still being more optimistic. Trivikraman Thampy, CEO of PlayGames24x7, which runs My11Circle and others, said, 2023 has been a good year in terms of policy clarity. While there has been a financial setback due to the GST regime, moves such as MeitY becoming a nodal ministry for the gaming sector and others have helped. TDS clarity has also helped as well as better defined rules on online gaming as a sector in India.
“While the new GST law in the short term is somewhat painful, it gives businesses an opportunity to continue to grow sustainably. It has been a significant year in terms of policy framework for the industry” said Thampy.
Did the company have to pare their estimates? The answer is yes and that there will be an impact in the short term. He does feel that this year had only six months of high taxes, but the next year will have an entire 12 months of high taxes, making it a far tougher year. The setback for the industry is about two years.
The way one consultant sees it is that companies which have a user base of over 40-50 million, across different states in India will be the ones to survive. “Today there is an opportunity for some of these startups to not only go pan-India but also go to other regions like Mena. It will begin next year. Hyper-growth in the sector should come in beyond the next three years,” said Raghav Anand, partner and leader, digital, new media and convergence. As per his estimates, India has 425 million gamers who will go up to 538 million in the coming years and about ₹23,000 crore has been invested into the sector between 2020-2024.
All eyes could now also be on the much smaller, non-RMG and eSports sector, which attracts far more serious gamers, and will grow at a CAGR of 24% from FY23-28, making up for a market size of ₹8,167 crore.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates.
Published: 28 Dec 2023, 09:21 PM IST
[ad_2]
Source link