In a bid to offset some of the impact on their margins hit by the 28% Goods and Services Tax (GST), over four months after it came into effect on October 1, the online gaming industry is looking to innovate and even incentivise users.
“Operating costs of gaming companies have increased by 4x to 6x times after the implementation of 28% GST on deposits. Companies are trying to offset this increased cost by reducing their marketing budgets, laying off employees and adoption of other cost-cutting measures at different levels to survive,” one of the expert said.
As per reports, major industry players have already started providing special cashback offers and incentives to offset the GST burden on players. Some of them are also looking to put more money into advertisements and create new users to increase profitability. Witzeal Technologies, too, is “looking for other innovative models on the product side to provide a cutting-edge gaming experience to our users by enhancing our existing games and introducing other innovative things to increase user engagement”, he said without giving further details.
Another expert said that the industry players are also introducing new variations in their gaming models to keep consumers hooked. “Another option that they may explore is to introduce games with a low-entry threshold and with a wide player base to ensure that the consumer is not impacted by the quantum of tax suffered,” he added.
In the backdrop of the 28% GST implementation, there are two strategic options that online gaming companies are exploring at this stage, as per Kishore Kumar, lead, GST and customs, Taxmann Allied Services. “These are to absorb the entire GST liability of 28% or pass on the burden partially or completely to the users. In addition, companies are considering innovative strategies to enhance spin rates, reduce customer acquisition cost and improve unit economics,” he said.
According to an industry expert, gaming operators are working to determine the best business model and opportunities for innovation to rebuild the foundation of gaming in India under the new GST regime. “Online gaming is an emerging sector that will offer the growth that Bharat deserves in our Amrit Kaal,” he said, adding: “The process for the government and the industry to find a balance is ongoing. The government would find a balance between providing a boost to the industry and maximising its revenue.”
Meanwhile, the aggressive taxation regime has provided impetus for companies to diversify operations into other geographies that provide them lower tax base. For example, in October, gaming startup WinZO announced that it is investing $25 million to expand its base in the Brazilian market, where the tax levy is much lower than in India and stands at 2-5%.
Brazil is the fourth largest gaming market in the world with a user base of 90 million users. The expansion is particularly timely in the context of challenges faced by India’s gaming ecosystem due to a 400% increase in the GST, another expert was quoted as saying by media reports then.