Booming India gaming sector in shock following 28 pct increase in GST tax

Stocks of gaming companies Delta Corp. and Nazara Technologies tumbled after India decided to impose a levy of 28 percent on online gaming in a blow to the industry that has boomed in recent years.

Taxes will be imposed at entry points on full face value for online gaming, casino, and horse racing, Finance Minister Nirmala Sitharaman said after a meeting of the Goods and Services Tax Council in New Delhi on Tuesday.

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This paves way for a uniform rate on game of skill as well as game of chance, as opposed to the 18 percent tax currently levied on online skill-based games. The government will amend the GST law to include online gaming, and also horse racing, as taxable items.

“Our agenda is not to end the industry but that does not mean we will give it more importance than essential goods,” Sitharaman said. “We are purely looking at what is being taxed.”

Delta Corp led the drop in Indian online gaming companies, plunging 20 percent — the most since March 2020. Nazara Technologies pared losses after falling as much as 14 percent.

Nazara said the tax, once implemented, will apply only to the skill-based real money gaming segment, which had a 5.2 percent share in its consolidated revenues last fiscal year.

“The company will proactively take steps to mitigate any potential impact to this segment of our business, and we anticipate minimal impact to our overall revenues,” it said in an exchange filing.

Online gaming companies have long fought to be considered distinct from betting and gambling businesses — sectors with a negative social image and more onerous tax provisions. The decision is seen to hurt the $1.6 billion industry that has boomed in India, particularly since the COVID-19 pandemic forced many people to stay at home.

“The implementation of a 28 percent tax rate will bring significant challenges to the gaming industry,” said Aaditya Shah, chief op-erating officer of online gaming platform IndiaPlays. “This higher tax burden will impact companies’ cash flows, limiting their ability to invest in innovation, research, and business expansion.”

Gaming companies, including online gaming companies in India as well as overseas, have evaded goods and services tax worth 229 billion rupees ($2.8 billion) from April 2019 to November 2022, the Finance Ministry told Parliament in December.

“This is an extremely unfortunate decision,” said Malay Kumar Shukla, secretary of E-Gaming Federation. “A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators.”

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