Shares of Nazara Technologies, Delta Corp, Zensar Technologies and OnMobile Global tumbled 1-20 percent on July 12 after the GST Council decided that online gaming, casinos and horse racing will be taxed at 28 percent.
Delta Corp shares even hit the 20 percent lower circuit limit at Rs 197.45. Shares of Nazara Technologies slumped 6 percent while those of OnMobile Global fell 5 percent. Zensar Technologies shares dropped about a percent in early trade but recovered soon after.
The Group of Ministers on July 11 decided to levy a 28 percent goods and services tax (GST) on the full value of online gaming, horse racing and casinos with no distinction between games of skill and chance in the 50th GST Council Meeting, Finance Minister Nirmala Sitharaman said on July 11.
"GST Council has decided that online gaming, casinos and horse racing will be taxed at 28 percent at entry point on full face value of bets," Sitharaman said. However, the effective date for the 28 percent GST levy on online gaming will roll out after amendments to GST law, she clarified.
Currently, online betting and gambling attract 28 percent GST, irrespective of whether it is a game of skill and chance. Other games attract an 18 percent levy on gross gaming revenue (GGR).
This comes at a time when online gaming businesses were on the road to recovery with the formation of Self Regulatory Body (SRB) and lifting of ban on Battlegrounds Mobile India.
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Repercussion
Nazara Technologies clarified that once this tax is implemented, it will apply only to the skill-based real money gaming segment of its business. “The contribution of this segment to our overall consolidated revenues for the financial year FY23 was 5.2 percent,” the company said in a regulatory filing. It anticipates a minimal impact to the company’s overall revenue.
For Delta Corp, 80 percent of the gross income from operations came from gaming operations in FY23, and about 15 percent from online skill gaming operations.
In case of Zensar Technologies, the IT firm has established a dedicated Game Testing Centre of Excellence to support gaming companies in achieving their testing and development goals with enhanced efficiency and speed.
Meanwhile, OnMobile Global, an Indian telecommunications company offering a range of products including games, videos, tones, and contests, has only one operating segment.
Read more | 'Will wipe out the entire industry', say online gaming cos after GST set at 28%
Backlash
The decision to levy 28 percent GST is a terrible blow to the gaming industry and would only prove to be unfavourable for most start-ups, industry participants said.
"Start-ups in the online gaming industry will not be able to survive this high taxation," said Joy Bhattacharjya, Director-General Federation of Indian Fantasy Sports. He added that illegal operations from outside the country will benefit from high taxation as lot of consumers will move to foreign players for online gaming.
Even Roland Landers, CEO of the All India Gaming Federation, believes the only side which will benefit from high taxation will be the illegal betting and gambling industry. He said the start-up industry had huge hopes of receiving a lower GST rate and this 28 percent tax on online gaming "takes us back many years".
"The start-up industry in online gaming industry will be completely wiped out," Landers cautioned.
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