Amid the ongoing 28% GST issue in the online gaming industry, 30 domestic and Indian investors have penned a letter to the Prime Minister of India (PMO) urging a reconsideration of the taxation matter. Notable signatories include Kalaari Capital, Peak XV Partners, Orios Venture Partners, Tiger Global Management, and Alpha Wave Global.
Concerns Over Equating Skill Gaming with Gambling
In the letter, the investors express concerns about the recent decision by the 50th GST Council, which they believe equates the legitimate online skill gaming industry with gambling and other games of chance. They emphasize that they initially invested in the sector with a vision to make India the gaming capital of the world and position the country as a net exporter of gaming innovation and related technologies.
GST Impact on Skill-Based Real Money Gaming
The GST Council’s decision to levy 28% GST on the full face value for online gaming companies, without distinguishing between games of skill and games of chance, has dealt a significant blow to the real-money gaming industry. The investors highlight that skill-based real money gaming is India’s largest gaming sub-sector and supports a significant portion of the game developer community across the country.
Potential Consequences on Investments and Employment
According to investors, the skill-based real money gaming sector has attracted $2.5 billion in global funding. There are around 400 startups in this space, some of which are unicorns.
The proposed GST regime is considered the most burdensome tax structure worldwide for the gaming sector. This could potentially lead to a write-off of the invested $2.5 billion capital and have a negative impact on prospective investments of at least $4 billion over the next 3-4 years.
Furthermore, the industry might suffer a severe impact on employment. This could result in the potential loss of over 50,000 high-skilled jobs and a further loss of livelihood opportunities for more than 1 million Indian citizens indirectly associated with this industry.
GST Effects on Media and Entertainment Industry
The online gaming industry has a significant role in the media and entertainment sector. It spends around $1 billion on advertisements. If they implement the proposed GST, it could completely wipe out this advertising spending. This would have cascading adverse effects on the larger media and entertainment industry.
The investors’ letter is a collective plea to the government. They want the GST proposal to be reconsidered. They are concerned about its potential repercussions on the thriving online gaming ecosystem in India. Their hope is that a revised approach will support the growth and innovation of the sector. Additionally, they want to preserve employment opportunities and attract further investments in the country’s gaming landscape.
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