Taxing Times: Online gaming firms fear growth slump
The gaming industry, which was growing at a notable compound annual growth rate (CAGR) of 28% from the fiscal year 2020 to 2023, is projected to grow at a CAGR of 15% until FY28, due to recent taxation changes.
By Shivani Bazaz
The cards have been dealt. And it looks like the house may not win this time around.
India's online gaming industry, which has catapulted to the forefront of the global gaming market, is worried, amid change in regulatory structure in the country. With 42.5 crore gamers, India stands as the second-largest gaming community in the world, trailing only behind China. However, the recent taxation changes have impacted the growth rate projections for the industry. The industry that was growing at a notable compound annual growth rate (CAGR) of 28% from the fiscal year 2020 to 2023, is expected to grow at a CAGR of 15% till FY28. According to an IAMAI and EY report launched at the Indian gaming convention in Delhi, the industry estimates a climb to ₹33,243 crore by FY28, signifying a 15% CAGR. The sector's outlook is further highlighted by substantial investments totalling ₹22,931 crore between FY20 and FY24 year-to-date (YTD), originating from both domestic and foreign investors.
A critical driver of this growth is the real money gaming (RMG) sub-segment, which commands a dominant 82.8% market share in FY23. The ecosystem is thriving with more than 400 RMG startups, contributing significantly to the industry's diversity and innovation.
Financially, the RMG sub-segment is poised to make a significant impact. Industry estimates suggest contributions of around ₹6,500 crore to ₹6,800 crore in direct tax revenues, comprising tax deducted at source (TDS) and corporate tax. Furthermore, the RMG segment is projected to add ₹75,000 crore to ₹76,000 crore in indirect tax revenue (GST) to the national exchequer over FY24−28.
However, the sector faces regulatory challenges. According to a report by EY, the Department of Revenue has issued tax demand notices to the tune of ₹1-1.5 lakh crore to over 40 RMG companies. This move underscores the government's focus on regulating the burgeoning sector. Notable players like Dream 11’s co-founder, Harsh Jain told CNBC-TV18 that the retrospective tax liability is in multiples of the life time earnings of the industry. “If this issue is not settled in favour of the gaming companies, the industry would be knocking the door of NCLT,” says Harsh Jain.
Additionally, industry stakeholders have raised concerns regarding the recent GST amendments, which they believe have adversely affected the unit economics of RMG companies. This change has reportedly decreased profitability and, in turn, impacted investor sentiment. Companies however are looking to pivot and make new strategies to keep the revenues up. “Most players are absorbing the increased GST liability so that the players don’t feel the heat. Eventually we will have to pass on a part of it,” says Trivikraman Thampy, co-founder and co-CEO, Games 24x7. He adds that even after this the industry has great prospects in a market like India.
As the Indian online gaming industry continues to expand, balancing regulatory measures with the sector's growth potential will be crucial. The industry's trajectory suggests not only a significant contribution to the economy but also a reshaping of India's digital entertainment landscape.
