GST Council to impose 28% tax on online gaming companies, stocks drop by 10-20%

In a recent decision, the Goods and Services Tax (GST) Council in India announced a 28% tax on online gaming, casinos, and horse racing. This move has sparked concerns within the gaming industry and has had a significant impact on the stock market, leading to substantial losses for companies like Nazara Technologies and Delta Corp.

Delta Corp, which primarily operates in the gaming sector, experienced a 20% decline in its share price, while Nazara Technologies saw a drop of over 14% in early trading. The Finance Minister, Nirmala Sitharaman, explained that the new GST rate would be applied uniformly without distinguishing between games based on skill or chance.

Impact on Nazara Technologies

Nazara Technologies clarified that the 28% GST would be applicable only to the skill-based real money gaming segment of its business. The company stated that this segment contributed 5.2% to its overall consolidated revenues for FY23 and anticipates a minimal impact on its overall revenue.

Impact on Delta Corp

Delta Corp, which heavily relies on gaming operations, saw its shares hit the 20% lower circuit limit. In FY23, 80% of the company's gross income from operations came from gaming, while approximately 15% came from online skill gaming. The imposition of a 28% GST on the entire value of bets may significantly affect Delta Corp's profitability and overall business performance.

Impact on Zensar Technologies

Zensar Technologies, an IT firm that established a Game Testing Centre of Excellence, may experience indirect repercussions due to the GST decision. While the immediate impact on the company's financials may be limited, the overall gaming industry's challenges could indirectly affect Zensar's business prospects in the gaming sector.

Impact on OnMobile Global

OnMobile Global, a telecommunications company offering gaming products, faces a setback as the 28% GST levy is deemed unfavorable for most startups and the gaming industry as a whole. The company operates solely in the gaming segment and may experience adverse effects on its operations and revenue due to increased taxation.

Concerns Raised by Industry Participants

Experts within the gaming industry have expressed concerns regarding the impact of the 28% GST on startups and the overall gaming ecosystem. They believe that high taxation will make it difficult for startups to survive and could potentially lead to the growth of illegal operators outside the country. The CEO of the All India Gaming Federation, Roland Landers, warned that the high tax rate could wipe out the startup industry in online gaming and hinder the industry's progress.

The decision has been met with criticism from industry players. The secretary of the E-Gaming Federation, Malay Kumar Shukla, expressed his disappointment, citing the nearly 1,000% increase in taxation on the full face value as catastrophic for the industry. The gaming sector in India has been experiencing rapid growth, accounting for 19.2% of worldwide game downloads as of May 2022, with an impressive compound annual growth rate. India recorded approximately 390 million online gamers in 2021.

According to a survey conducted by the EPWA, it is estimated that 61 out of every 100 online gamers may choose to discontinue playing if the GST on online gaming increases. The proposed changes in tax rates will burden the gaming industry financially, as they will be required to pay taxes on portions of money that do not contribute to generating revenue for the companies.