All India Gaming Federation (AIGF) said on Wednesday that small companies involved in online pay-to-play gaming will be unable to survive under the high GST rate of 28%.

Nirmala Sitharaman, the finance minister, said that a 28% Goods and Services Tax (GST) will be applied to all online games from October 1st.

“We believe the decision by the GST Council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs will no longer be able to survive in the face of the increased tax liability of 400 per cent,” AIGF said in a statement.

According to the industry body, only well-established and well-entrenched skilled gaming companies might be able to dodge the changes by using their existing capital reserves to make up for the huge tax liability.

“However, even their revenues and valuations will significantly fall. Additionally, companies at their early growth stages, particularly those within the startup and the MSME sector will be disproportionately impacted. Moreover, the rampant illegal offshore gambling websites will thrive as efforts to block them have been ineffective till now,” AIGF said.

Nirmala Sitharaman said that the levy will be re-evaluated after six months of implementation.

According to TMT Law Practice’s Managing Partner Abhishek Malhotra, the GST Council’s decision is not unexpected, but it will have a huge impact on the industry.

“While it is slated to be reviewed six months after implementation, there does not seem to be any indication of a rollback. What is worse is that the plan is to introduce this amendment by way of clarification. This means that the impact could be retrospective. A clear indication of that is the filing of the SLP in the Gameskraft matter. It is doubtful that the amendments would pass a constitutional challenge,” Malhotra said.

Saumya Singh Rathore, WinZO’s Co-Founder, said, the online skill gaming industry is not a homogeneous one and there are quite a few different, emerging, and unique business models that need to be looked at more closely.

“GST on deposits rather than the technology platform commission charged by the companies will make the unit economics unviable, wiping out 80 per cent of the industry, with fatality concentrated in MSMEs and startups that house new age business models. “This increase of 400 per cent will solely encourage the rise of monopolistic play,” Rathore said.

Head Digital World (A23) SVP Siddharth Sharma stated that the GST will impede the growth of the company and the industry soon.

“We remain committed to providing a seamless, enjoyable, yet safe gaming experience for our users, and we are confident our focus on innovation will propel us forward despite the immediate hurdle,” Sharma said.

Credit: Business Today