In response to the new Goods and Services Tax (GST) regime in India, online gaming companies are taking creative measures to prevent customer loss. They are absorbing the 28% GST deduction on deposits and compensating users for at least the next two to three years. However, industry experts warn that this strategy could lead to the consolidation of the online gaming sector, with smaller firms facing potential closure.
Leading companies such as Dream11, Mobile Premier League (MPL), and WinZO have initiated cashback schemes to cover the GST deduction costs for their users. Larger corporations have the financial capacity to sustain this practice, but smaller businesses may be pushed to the brink.
A senior industry executive, speaking on the condition of anonymity, stated, "The bigger companies can afford to absorb the GST costs for as long as 2-3 years. But the smaller ones simply do not have the resources for it, and will have no option but to shut down."
The decision to absorb GST deductions stems from the desire to maintain user satisfaction. When users deposit money into their gaming wallets, they expect the full amount to be available for gameplay. Passing on the GST cost to users could result in a significant drop in user engagement.
Industry executives recognize that the real competition comes from offshore platforms. While bigger companies can wait out their immediate competitors, they must also contend with offshore platforms that may not adhere to the same tax regulations. This poses a dilemma for online gaming companies in India.
There is a growing consensus within the industry that, in the long term, only three or four major companies will survive, as small companies struggle to stay afloat. The barriers to entry into the sector will become prohibitively high, as newcomers will need to offer discounts from day one, which may not be feasible.
Dream11, for instance, offers users 'discount points' to offset the GST deduction. If a user deposits Rs 100, they receive Rs 78.12 as the deposit amount, with Dream11 covering the remaining Rs 21.88 to maintain a total balance of Rs 100. However, Dream11 deducts 22% of the amount used to join contests from a user's discount points balance, after applying other available discounts.
MPL, a multi-game platform, offers a cashback to users equal to the GST deduction. For instance, if a user adds Rs 50 to their MPL wallet, and Rs 10.93 is deducted as GST charges, MPL credits the wallet with Rs 10.93 to retain the original deposit of Rs 50.
WinZO, which aggregates various online games, offers users a bonus ranging from Rs 10 to Rs 50 based on their deposit amount. For every Rs 100 deposited, WinZO provides a bonus of Rs 50.
As the amended GST rules take effect, concerns about compliance and applicability have arisen. Some states are yet to clear amendments for their State GST (SGST) laws. The All India Gaming Federation has appealed to the Ministry of Finance to reconsider these amendments, citing the delay in adoption by approximately 15 states.
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