Online Gaming companies are looking to cut down on their expenditures to better absorb the impacts of the new 28% GST on face value. These firms may lower spending in areas like advertising and marketing.
Why GST is so impactful on Online Gaming firms
The GST Council recently announced that it will be imposing 28% GST on online gaming on the face value of bets. This decision was met with heavy criticism from the industry and its various stakeholders, who believed that this change might irreversibly damage the emerging market and lead to losses worth billions of dollars. The online gaming companies claimed that the tax hike could cripple the industry since a higher GST affects both players and the firm’s ability to earn profits from these platforms. Players might also shift to foreign gaming platforms to avoid the hefty taxes.
Cutting expenses to make up for losses
Pankaj Soni, Witzeal Technologies Marketing VP, stated that the company has already reviewed its yearly marketing budgets for India, which will be cut down significantly. He adds that other real-money gaming firms have also reduced expenditures on marketing. It is worth noting that online gaming firms spend a major portion of their income on advertising. Fantasy sports is a great example as these platforms typically spend lavishly just ahead of major sports events like the upcoming ODI World Cup.
According to Keerthi R Kumar, FoxyMoron’s Business Head, the top 15 revenue-generating firms in online gaming collectively brought in Rs 9,093 crore in FY22. This includes Dream11, Gameskraft, Games24x7, MPL, and others. These companies also used over half of their revenues towards promotions and advertising. But with the 28% GST, these expenditures might be reduced greatly, which is a big deal since online gaming reportedly contributes 5% to the overall ad spending in India.