What 28% GST On Online Gaming Means For Dream 11, Nazara Tech And MPL Investors

The Indian government’s recent decision to impose a 28% tax on funds collected by online gaming companies from their customers has sent shockwaves through the $1.5 billion (₹12,356 crore) industry. Representatives of gaming firms are resisting this move, arguing that the additional charges will likely end up being borne by the customers. They anticipate that this decision will significantly impact the earnings of the companies involved.

Finance Minister Nirmala Sitharaman, the announcer of the decision, claims that the government imposed the tax after consulting with states and did not intend to harm the industry.

The All India Gaming Federation’s CEO, Roland Landers, has even called the decision “unconstitutional and irrational”. Many in the industry echo this sentiment, particularly because these gaming apps, backed by famous athletes, are attracting substantial foreign investment.

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Companies like Dream11, backed by Tiger Global and valued at $8 billion (₹65,901 crore), and MPL, which has received investment from Peak XV (previously Sequoia Capital India), are likely to feel the pinch. Until now, these companies were taxed only on the fee they charged for offering real money games. The new tax regime will impose a 28% tax on the total amount collected from players in every game.

Shockwaves at the bourses

The impact of this tax change is already being felt in the stock market. Shares of online gaming firms such as Nazara Technologies, Onmobile Global, and Delta Corp have seen a significant drop.

Nazara Technologies has stated that the tax will apply only to the skill-based real money gaming segment of its business, which contributed 5.2% to its consolidated revenue in fiscal year 2023. The company anticipates minimal impact on its overall revenue. However, the tax does not differentiate between skill-based games and those based on chance, adding another layer of complexity to the issue.

The imposition of this tax comes at a time when the revenue of fantasy gaming platforms has been on the rise, especially during the popular Indian Premier League cricket matches. According to Redseer consultancy, industry revenue rose 24% from a year earlier to over $342 million (₹2,817 crore), with over 61 million users participating.

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Posted In: EquitiesGamingGovernmentRegulationsMarketsGeneralDream 11GSTMPLNazara Techonline gamingPeak XV Partners