28% GST burns sets ablaze online gaming cos

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Days after the government decided to continue with imposing 28% GST on the full value of deposits made on online gaming platforms, the massacre has begun. The first in line of fire is Mobile Premier League (MPL), which has fired 350 employees, which is about 50% of its workforce. 

The Lok Sabha today also cleared two amendments to the GST bill, allowing the levy of 28% tax on horse racing, casinos and online gaming. Even Rush gaming universe, a Web3 gaming platform has laid off 55 employees. Real money based information gamifying platform Quizy has also announced shutdown, thanks to the new rule. 

In an internal memo addressed to MPL employees by founders Sai Srinivas and Shubh Malhotra, there was mention of the new rules increasing the company’s tax burden by a whopping 350-400%. 

However, the 28% levy will be enforced starting October 1, which is still a few months away. FM Nirmala Seetharaman has also tried, albeit unsuccessfully, in assuaging the frail nerves of the online gaming industry by saying that the decision will be reviewed again in 6 months. 

The council clarified in its meeting on 2nd August that GST will only be levied on the face value of entry level bets, and not on its consequent redeployment or the total value of each bet placed by the player. That means that If Mr. A deposited Rs 1,000 on the platform to play and won Rs 300, which he further invests in another game, he won’t be charged GST on this Rs 300. While this does address the issue of double taxation, the overall burden continues to stay high. 

Moreover, most states are expected to take the Ordinance way to modify local GST laws, that will allow them to begin taxing casinos, horse racing and online gaming cos at the earliest.

Says Ranjeet Mahtani, Partner, Dhruva Advisors, “ The 28% tax will make the sector lose its sheen and attraction for investors. This will also adversely impact the playing amount invested by players”.