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The gaming landscape in India has undergone a remarkable transformation, evolving from a leisure activity to a lucrative career option. The emergence of the animation, visual effects, gaming, and comics (AVGC) sector has had a positive influence on the gaming industry, propelling it towards rapid growth. Despite being in its nascent stage, the sector has the potential to revolutionise gaming in India, driven by ongoing technological advancement and growing acceptance.
Post-pandemic, the gaming industry has become a hub for investment activities. Notably, there has been a surge in private equity (PE) funding and a marginal uptick in mergers and acquisition (M&A) activities, highlighting investors' recognition of the sector's growth potential and innovative prowess. Moreover, the official inclusion of e-sports in multisport events managed by the Ministry of Youth Affairs and Sports in December 2022 has given a significant boost to the industry. In 2023 alone, 14 gaming start-ups secured approximately USD 90 million in funding, with a focus on e-sports and mobile gaming. Furthermore, emerging technologies such as virtual reality (VR) and augmented reality (AR) are reshaping the gaming landscape, offering new avenues for developers and gamers. However, they also bring cybersecurity challenges as games become more connected and interactive.
Despite the industry's growth, it faces stiff competition and cybersecurity concerns have become paramount due to increased connectivity, making games susceptible to attacks.
List of gaming companies that raised multiple rounds of funding during 2020-YTD 2023:
| Companies | No of funding rounds | Amount (USD million) |
|---|---|---|
| Gamerji e-Sports Private Limited | 5 | 11 |
| Cashgrail Private Limited- Zupee | 4 | 120 |
| Super Six Sports Gaming Private Limited- Fantasy Akhada | 4 | 17 |
| Bombay Play Pvt Ltd | 3 | 10 |
| Mobile Premier League(MPL) | 3 | 335 |
| Greenhorn Wellness Pvt. Ltd- EloElo | 3 | 37 |
| TICTOK Skill Games Private Limited- WinZo | 3 | 85 |
Source : Grant Thornton Deal Tracker
Recent tax amendments in the gaming sector, including levy of GST @ 28% on total amount deposited with suppliers (including advances), introduction of specific provisions for online gaming and mandatory registration for offshore gaming platforms have spurred proactive discussions within the industry. Furthermore, issuance of GST notices for a previous period, par treatment of game of skill and chance, non-adjustment of GST on refund/return amount and classification of online money gaming as goods have left room for various interpretations.
Globally, several countries including Australiai, the Czech Republic,ii among others, have adopted gross gaming revenue (GGR)-based taxation models. Some other countries such as Portugaliii, Polandiv etc., which impose tax on contest entry amounts, have subsidised tax rates ranging from 3% to 15% with a rising tendency towards taxing GGR rather than the full face value of bets placed. With the low profit margins, such non-standardisation of tax implications at the global level could potentially lead to a significant shift of consumers towards offshore platforms or even illicit gaming and betting platforms.
These amendments may have overarching effects on employment generation in this fast-growing industry, especially in the start-up space. Adapting to these changes will require careful deliberation and meticulous planning to alleviate the impact of the additional tax burden on online gaming players. One crucial consideration for gaming platforms will be whether to absorb the entire GST liability or pass on a portion or the additional burden to gaming players. With the lower GGR and higher tax rates, absorbing the full tax impact might prove financially untenable for gaming platforms. Conversely, passing on the entire burden to players could significantly reduce the prize pool and disincentivise users from participating. While foreign direct investment (FDI) plays a pivotal role in the gaming sector's growth in India, the revised tax regime could impact gaming companies' profitability and India's appeal as an investment destination. Therefore, striking a balance between the tax burden, global competitiveness and net winnings for players becomes paramount with a focus on scaling up the userbase to mitigate the impact of the increased tax burden and ensuring the sector's sustainable growth and success in future.
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