The Goods and Services Tax (GST) Council's move to impose a 28 percent tax on player deposits in real-money games has led to a significant job erosion in India's rapidly growing skill gaming industry, as per a joint report by Ernst and Young (EY) and the US-India Strategic Partnership Forum (USISPF).
The report is based on the findings of a survey conducted by USISPF of 12 companies in the sector across various stages of operations. It notes that the participants are relevant stakeholders from the online skill-gaming industry, but doesn't disclose any specific names.
About four of the surveyed companies have laid off up to 50 percent of their workforce, while one company had to lay off more than 50 percent of the people and an early-stage startup had to shut down its operations, the report said.
Four companies said they have stopped hiring but have not laid off any employees. Overall, about 10 companies faced significant headwinds on employment creation, it said.
"For a sector which has created 100,000 jobs and was expected to create around three times more jobs in coming years, such job erosion is an alarming concern that reflects the adverse business impact of the GST amendment" the report said.
Read: How GST Council's 28% tax levy affects India's real-money gaming sector
It added that the tax hike has also resulted in challenges such as talent retention and acquisition for companies, due to negative government sentiments towards the sector.
Moneycontrol had earlier reported that skill-gaming companies such as Mobile Premier League (MPL), Hike (Rush Gaming), and Spartan Poker have laid off employees to streamline costs in recent months while startups such as Fantok, Quizzy, One World Nation and MPL-backed Striker have either shut down or temporarily suspended their operations.
Spartan Poker was acquired by metaverse and gaming tech company OneVerse in February 2024. OneVerse also subsequently acquired online poker platform Calling Station and fantasy sports app BatBall11.
Decreased margins
These developments are due to the increased GST levy that has reduced the margins for skill-based companies, as per the report.
The new GST regime which was implemented on October 1, 2023 has led to a significant rise in the tax outflow of companies, increasing by as much as 350 to 400 percent, industry executives and other stakeholders had told Moneycontrol earlier.
Many firms are currently absorbing the additional tax burden instead of passing it on to the consumers in order to avoid a potential churn in their respective userbases.
Read: India's real-money gaming sector had a rough 2023. Will 2024 be any better?
According to the survey, seven out of the 12 companies are not passing on the cost to the users at present. This has resulted in GST accounting for 50 percent to 100 percent of revenues for four companies.
For three early-stage companies for whom net deposits (GGR) are negative, the GST cost is over 100 percent of the revenue, it said. Prior to the GST amendment, GST accounted for around 15 percent of revenues of skill gaming companies, the report said.
The GST Council is unlikely to review the 28 percent tax levy on the sector in the upcoming meeting on June 22, Moneycontrol reported on June 19.
The Council is however likely to consider an amendment to the Central Goods and Services Tax (CGST) Act, 2017 to quash retrospective tax demands, according to media reports.
This proposal, suggested by the law committee, aims to address tax notices issued where lower taxes were paid due to interpretation issues or lack of clarity in the law. Companies that have paid excess GST due to these practices will however not be eligible for refunds.
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