High GST will make it more difficult for gaming companies to raise capital and invest in new games and technologies. This could impact the industry’s pace and make it less competitive in the global market. (Shutterstock)
Passing the costs to gamers is the most likely scenario at the moment, as companies will need to cover the higher taxes somehow. But, again, this could lead to a decrease in the number of gamers and a decrease in revenue for companies
First of all, it is important to know the concerns being raised by industry leaders. The industry believes the move will lead to increased costs for gamers, investment reduction, shift to illegal gambling, loss of jobs, reduction in innovation, increase in piracy and damage to reputation.
When GST will be passed on to gamers in the form of higher prices for games and in-game items, it will make gaming less affordable and could lead some people to pirate games instead of paying for them.
Since such a decision may make legal online gaming more expensive, people may also move to illegal gambling platforms, which are often easier to access and also not subject to the same restrictions.
Similarly, high GST will make it more difficult for gaming companies to raise capital and invest in new games and technologies. This could impact the industry’s pace and make it less competitive in the global market.
Also, the gaming industry is a major employer in India and higher GST could lead to job losses because companies may be forced to cut costs to cover the higher taxes.
Additionally, the high GST could make it more difficult for the companies to innovate and develop new games because they will have to spend more money on research and development and they may be less likely to take risks on new ideas.
Ultimately, the industry argues that the high GST could damage the reputation of the online gaming industry in India because it could be seen as a sign that the government does not support the setup or its growth.
Next Possible Moves
The way ahead for online gaming companies in India is uncertain at the moment. The government has not indicated any plans to change the 28 per cent GST so companies will have to adapt to the new tax regime.
Online gaming companies now may take some steps to mitigate the impact. Passing the costs to gamers is the most likely scenario at the moment as companies will need to cover the higher taxes somehow. This could, however, lead to a decrease in the number of gamers and a decrease in revenue for companies.
Secondly, companies can try to reduce their costs to offset the higher taxes. This could involve cutting costs on marketing, research and development, or staff. But this could also lead to a decrease in the quality of games or services offered.
However, online gaming companies can focus on specific segments of the market, such as casual gamers or mobile gamers. This could help them to reduce their costs and target a market that is less price-sensitive. They may also expand into international markets where the GST is lower which could help them to offset the higher taxes in India.
Separately, they may offer more value-added services such as in-game coaching or live streaming to help gamers improve their skills and experience, or partner with other businesses — such as telecom operators or banks — to offer discounts or promotions. They can also educate gamers about the GST and how it will affect them, which may help to reduce the backlash from gamers.
There is another route which the industry may take with some companies mulling challenging the decision in court. The industry of online gaming, which is a skill-based activity and not gambling, may argue that this decision violates the right to freedom of trade and commerce.
The industry may argue that the 28 per cent GST violates this right because it places an undue burden on it and makes it more difficult for companies to operate and compete in the market.
However, at present, what the industry leaders want is to have a dialogue with the regulators so that they can put their concerns on the table and answer the questions to find a middle ground.
