(CTN News) – India’s burgeoning online gaming industry, growing at an annual compounded rate of 28% to 30%, has attracted international investors and witnessed endorsements from prominent sports personalities.
Tiger Global, a United States investment firm, has notably backed Indian gaming start-up Dream11, the primary sponsor of India’s national cricket team.
Growing Online Gaming Industry in India
However, the government’s new tax policy is poised to present challenges for the industry. Industry executives have indicated that they may have to pass on the additional costs to customers by raising game prices, potentially impacting cash flows for gaming companies.
Aaditya Shah, the Chief Operating Officer at gaming app IndiaPlays, expressed concern about the higher tax burden and its repercussions on the gaming industry. Roland Landers, CEO of The All India Gaming Federation, labeled the decision “unconstitutional” and “irrational.”
The proposal to tax online gaming at a rate of 28% equates games of skill with wagering contracts associated with gambling and betting, according to Kishore Kumar, the indirect tax lead at Taxmann.
Previously, companies offering real money games in India paid a small tax on the fees charged to players. However, the recent change will subject the entire amount collected from players in every game to a 28% tax. This shift will likely impact the financial dynamics of the industry.
Popularity of Fantasy Cricket Games and Revenue Growth
The popularity of fantasy cricket games on platforms like Dream11 has soared in India, with users paying as little as 8 rupees (10 US cents) to create teams and compete for a prize pool as high as 1.2 million rupees ($14,565).
During the recent Indian Premier League cricket matches, fantasy gaming platforms experienced a 24% revenue increase from the previous year, generating over $342 million with more than 61 million participating users, as reported by Redseer consultancy.
The Indian government’s decision to impose a 28% tax on funds collected by online gaming companies has dealt a significant blow to the $1.5 billion gaming industry. As concerns about addiction and financial losses mount, the move aims to address these issues.
However, industry executives and experts have raised objections, citing potential negative consequences and likening skill-based games to gambling.
The impact of the tax burden on companies’ cash flows and the potential rise in game prices remain significant concerns for the industry’s future growth and profitability.