The GST Council has announced the imposition of a 28 percent tax on the online gaming industry, and the impact of the tax not being implemented earlier is beginning to show on companies. There is a phase of retrenchment among companies and many companies have announced closure of ventures.
The move to levy 28 percent GST on the full face value of online gaming has already started causing problems in the sector even before its implementation. With the onset of retrenchment, cases such as closures and shutdowns of companies and lack of funds have come to the fore. Bengaluru-based unicorn company Mobile Premier League (MPL) has sacked 350 employees citing increased taxes.
Kavin Bharti Mittal’s Rush Gaming Universe has also laid off 55 employees fearing the impact of GST. Which is about 25 percent of the company’s employees. Many smaller companies are either shutting down or looking to merge with larger platforms. On the other hand, capital ventures have also withdrawn funds from these companies and are investing money in gaming companies that are not affected by GST. Investors estimate that the valuations of the big players in the sector may also come down.
Withdrawing Their Investment From Companies
Rajeev Suri, managing partner, Oreos Venture Partners, says the valuations of the big players in the ecosystem could come down significantly. He said that due to lack of liquidity in the market, it may see further decline. Apart from this venture capital is moving towards businesses which are more stable. Leaving the gaming sector, they are moving towards investing in sectors that have less GST impact, even if it is related to the gaming sector. Oreos is an investor in Gurugram-based real money gaming startup Jupy.
The Gst Council Decided to Levy a Tax of 28 Percent
On July 11, the GST Council decided to levy 28 percent tax on the full face value instead of levying GST on gross gaming revenue or platform charges. In another meeting on August 2, the council clarified that the tax would be applicable on deposits made by players to participate in games, thus repeating the same principle when they use their winnings to play more games. Taxes can be avoided. After this decision, some big players got some relief.
A Cost-cutting Phase Begins
MPL co-founder and CEO Sai Srinivas wrote to his employees on Tuesday that the company has posted its best ever business performance in the months of June and July. The impact of GST implementation means that the company is going through a cost reduction phase. This also includes reducing and reducing the cost of its server and workplace infrastructure – effectively a sign of downsizing the company.
Small Companies Are Closing Down
Sachin Yadav, co-founder of real money gaming startup Quizzy, announced the closure of his venture in a LinkedIn post last week.