28% GST levy will upend the economics of real-money gaming sector, says Nazara's Nitish Mittersain

The GST Council's decision to levy a 28 percent goods and services tax (GST) on the full value of the money paid by users to play skill-based games will upend the economics of the country's fast-growing real-money gaming sector, Nazara Technologies chief executive Nitish Mittersain told Moneycontrol.

"It's quite a big shock to the industry and the business economics will go for a toss. We are right now trying to regroup and figure out what to do," Mittersain said.

"In fact, the industry was taken by surprise because the general consensus was that this (GST tax) would be applicable on the platform fee or GGR (Gross Gaming Revenue) and not the entry fee," he said.

To be sure, Mittersain said that the revenue impact on Nazara Technologies itself will be minimal since the segment contributed only a modest 5.2 percent to the company's FY23 revenue.

In an earlier interview with Moneycontrol, Mittersain had talked about the company's plans to build a larger presence in the real-money gaming business, with regulatory clarity appearing to emerge in the space following MeitY's online gaming rules, and the new income tax clarity on TDS.

"I think the only big bottleneck still left in real-money gaming is GST clarity," Mittersain told Moneycontrol in May 2023.

However, following the GST Council's decision on July 11, Mittersain said they will become more circumspect on its investments into the real-money gaming segment until "things become clearer and the dust settles".

"I have always maintained that we want to get regulatory and taxation clarity before making a large move into real-money gaming," he said.

"Over the years, I've seen gaming is always disruptive, either technology is disrupting you or the regulation is disrupting you. That is why I've tried to build Nazara as a diversified platform. We are diversified by product, by geography, and by business model," Mittersain added.

On July 11, the GST Council decided to impose the top GST slab of 28 percent on full face value of the bets placed in the case of online real-money gaming, in a uniform manner with no distinction between game of skill and chance.

These rates do not apply to free-to-play and paid video games, wherein the 18 percent GST rate is already included in the app sales on Google Play and Apple App Store.

This move is set to exponentially increase the effective tax being paid on these transactions, from the current 18 percent GST that real-money gaming platforms are paying on platform fees.

For example, if people pay Rs 100 as an entry fee for tournaments, the platform earns an average fee of Rs 10 and its GST payout will be Rs 1.8. However, with the new rates, platforms will have to shell out a GST of Rs 28, This would mean that they will be paying more in taxes than what they will be generating in revenue.

Mittersain said this will likely lead to the platforms passing the additional tax burden to the players, which will result in a significant reduction in winnings in the consumers' hands, who will have to also pay an additional 30 percent TDS on the winnings.

This will lead to transaction volumes shrinking dramatically once the tax levy is notified, he said.

The real-money gaming segment accounted for 77 percent of India's gaming sector revenues in 2022 which stood at Rs 13,500 crore, as per a recent FICCI-EY report. These revenues are set to grow to Rs 16,700 crore in 2023 and Rs 23,100 crore in 2025, it said.