India's online gaming sector: Can it survive under the 28% GST regime?

Nothing is certain in life, it is said, barring death and taxes. And India’s gaming industry, buzzing with frenetic activity till recently, is realising the truth of the idiom as it grapples with a massive tax burden that threatens to derail the sector and slam the brakes on its growth. The $3-billion Indian online gaming industry was growing smartly, with reports pegging it at $8.6 billion by FY27, growing at a compound annual growth rate of 27 per cent. But the tax authorities had other plans. While online games of skill were taxed at 18 per cent GST earlier, and those of chance at 28 per cent, the GST Council has, with effect from October 1, 2023, brought all real-money online gaming under a blanket 28 per cent GST slab on the full value of bets placed. The tax authorities feel that these games are a social problem akin to gambling, and there have been instances where people have run up huge debts and even died by suicide in extreme cases. The ambiguity between what constitutes a game of skill and a game of chance also had the potential for protracted litigation. Hence, a blanket 28 per cent GST on all real-money online gaming was seen as necessary.

What this has done is throw the gaming industry—which has also spawned unicorns— into disarray, with many of them looking to downsize in the wake of the tax burden that they feel makes their operations unviable. In our cover story, Surabhi and Bhavya Kaushal take a close look at the crisis that has hit the online gaming sector and what it means for gaming companies. While a Supreme Court verdict on an earlier tax demand against online gaming firm Gameskraft is pending, the fact that the apex court stayed a Karnataka High Court order quashing a Rs 21,000-crore GST demand on the firm has also bolstered the argument of the tax authorities. The new GST rate apart, several gaming companies have also been slapped with tax notices amounting to a staggering Rs 1.5 lakh crore. Can the sector emerge from this massive speed-breaker?

Will several companies shut down or relocate to other countries? Will the gaming industry go the crypto way? These are the questions swirling around the industry. Clearly, gaming companies are facing their toughest test yet. Meanwhile, while the gaming sector grapples with the tax crisis, the equity markets are looking forward to a flood of initial public offerings (IPOs) in the second half of the fiscal. While the first half of the fiscal has seen lukewarm activity in terms of IPOs, the smart performance of some public offers this year has spurred many companies to look at hitting the primary market in the second half of FY24, with a hefty Rs 80,000 crore-plus worth of IPOs in the pipeline. Ashish Rukhaiyar and Rahul Oberoi take a look at the prospects of the IPO market and how experts see it playing out in the coming months