It is said that time heals everything, but not in the case of the online gaming industry in India. It has been about a year, post the implementation of 28% GST (goods and services tax) on full face value for online gaming, and the sector has been reeling under the effect, ever since. One of the most adverse impacts has been on the growth, especially in revenue. According to industry estimates the online gaming industry has posted a negative growth rate in revenue by 20-30% in FY24. Furthermore, real-money gaming revenue will grow at a reduced CAGR of 10% between 2025 and 2028 due to the impact of GST. It was previously growing at a CAGR of 25%. Industry experts believe that the online gaming industry, once touted as the next largest industry in India in revenue, users, and employment, is currently struggling to stay afloat. “The increase in tax collections has justified the decision of the GST council from a revenue point of view and in providing clarity to online gaming industry. However, the impact on industry’s growth due ton-the tax increase needs to be evaluated to ensure that the industry and employment are protected. It’s like the case of golden goose where instead of collecting the eggs the revenue is actually killing the goose,” John Joseph, IRS (Retd) and former chairman and member (Policy), CBIC, told BrandWagon Online.
Last September, post the GST Council meeting, Finance Minister Nirmala Sitharaman announced that the Centre has seen a 412% increase in revenue to Rs 6,909 crore in six months from the tax levied on online gaming.
India’s gaming market exceeded expectations to record $3.8 billion in FY24, according to the latest report by gaming-focused venture capital firm Lumikai. The report further stated that with sustained growth in in-app purchases and ad revenue, the gaming market is expected to cross $9.2 billion by FY29, growing at a CAGR of 20%. In-app purchase revenue continues to be the fastest-growing segment with 41% year-on-year growth. On account of real-money gaming (RMG) platforms absorbing users’ GST cost and a packed live sports season comprising two World Cups and an IPL, the sector added about $400 million to its topline, the report stated.
Honey! Where is the money?
Post the imposition of 28% GST, while online gaming companies have struggled to manage their business model, data shows the funding too has dried up. The online gaming industry which raised investment worth $27.6 million in CY23 (January-December), has seen a big fall in the funding numbers between January-December this year, (till date) to just $4.9 million, revealed data from market intelligence platform Tracxn Technologies. With the online gaming industry still at a nascent stage industry experts believe that a continuous flow of funds is necessary. “The protracted decision-making process regarding the proposed increase in GST from 18% to 28% has caused uncertainty. Additionally, there is no clarity on whether GST will be charged solely on the income of developers and platform providers, rather than on the total amount wagered. This lack of clarity has stalled investment in the industry, as investors await the outcome of the Supreme Court judgment or an initiative from the union government,” Aruna Sharma, policy advisor, practitioner development economist and former secretary of the Government of India, said in an earlier interview to BrandWagon Online.
As per the Lumikai report, the Indian gaming market added 23 million new gamers to cross 590 million in FY24. India is the world’s second-largest market by mobile gaming downloads, 3.5x larger than the US and Brazil. Moreover, the average weekly time spent on games increased by 30%, from 10 to 13 hours. What is to be noted here is that mid-core games have propelled revenue growth in India as it exceeded expectations clocking an astounding 53% year-on-year growth. The report further stated that casual and hypercasual games saw a 10% annual growth in in-app purchases (IAP) revenue, while ad revenue remained stable despite global pullbacks on Ad-spends.
Interestingly, the report further stated that 44% of gamers are women, up from 41% last year, playing casual mobile games. 66% of gamers belong to non-metro cities and 43% of gamers are first-time earners in the age group of 18-30 years, exhibiting a high propensity to pay for gaming and interactive entertainment. “Currently the number of players is steadily growing as more players join regularly. The challenge lies in retrospective taxation. While the government has created a provision by amendment, it needs to trigger and resolve the issue as online gaming remains unaddressed. Additionally, the lack of regulation is driving firms to establish operations in other countries or the grey market, compounded by existing international competition. As a result, India is currently missing out on one-fifth of potential revenue,” Sharma noted.
The impact on business
As per the report, while the CAGR of revenue may be 10%, due to companies bearing the GST burden through various schemes for the customers, the cost burden, as a result, has increased by 300-400% for platforms. Not to mention, EBITDA of gaming platforms is down by 50%, impacting the ability of platforms to grow, sustain, retain customers and innovate. Moreover, the industry has already seen instances of companies shutting down or laying off employees. It is estimated that about 25% of companies have shut down within one year of GST. “The online gaming industry’s survival is linked to retrospective GST demand, which is the selection between implementing GST on entry fee v. platform fees. While the case is pending at the Court, the GST Council could clarify based on trade practices for the past period. The government’s approach towards regularising the online gaming industry was somewhat similar to what it did in the case of the cryptocurrency industry by implementing taxation,” Asish Philip Abraham, partner – corporate practice, Lakshmikumaran & Sridharan, explained.
While the government has left the industry to fend for itself, a lack of regulation has given rise to offshore betting and gambling platforms. According to a recent report by Think Change Forum (TCF), an independent think tank, titled ‘State of the Betting and Gambling Industry in India, offshore sports betting market received an estimated Rs. 8,20,000 crore ($100 billion) per annum in deposits from India and has been clocking growth of 20% per annum in the last three years post the pandemic. This as per industry estimates has translated into a GST loss of Rs. 2,29,600 crore, per annum for the public exchequer. What’s more, the risk has been flagged by DGGI in the annual report. India has sought Financial Action Task Force (FATF) oversight to curb money laundering by illegal gambling.
According to Abraham, the government looks at the online gaming industry as a source of entertainment for the masses with tax as an instrument of guardrails for KYC etc. “Implementation of SRO regime is crucial for the future growth and promotion of innovation. Stricter implementation of regulations for offshore gaming companies needs to be implemented to avoid user base erosion due to higher taxes and compliances. New evaluation regulations in the perspective of cross-border gaming and innovations like DAO need to be enabled for Indian companies to become global players. DAO is a new area for the sector to evolve,” he noted.
Gaming DAOs are decentralised, blockchain-powered organisations that enable community members to collaboratively govern and manage game development, funding, and operations. Leveraging tokens for voting and rewards, they foster transparency, autonomy, and active community participation within the gaming industry.
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