Online gaming in India has seen rapid growth since the pandemic. With large pot sizes, larger celebrities and success stories of huge payouts, the industry had become a darling of VCs from all over the globe.
However, a recent GST council meeting showed warning signs for the industry. Their proposed changes included:
👉 Uniform 28% GST on all online gaming, a rise from the current 18%
👉 GST on full face value of the deposit
This may not look like much but this could be a severe blow for the industry. Let’s understand this with an example:
Today if someone deposits ₹100 into a pot, house edge (what the company makes) is roughly 5% across all the users on the platform. Companies would end up paying 18% GST on the 5% that they make, roughly ₹0.9.
However, with the proposed changes, if a patron deposits ₹100, 28% GST would have to be paid on the total deposit which is ₹28, a ∼3000% rise in GST.
The knock-on effects from this will include:
👉 Lower patronage: People will now be fighting for ∼₹68 instead of ∼₹95 for every ₹100 deposited, a 30% drop
👉 Reduction in absolute house edge from ₹5 to ∼₹3.6 per ∼₹100 deposited, a 30% drop again. This will make their business models unsustainable
No wonder people have claimed that this could be the end of the industry as we know it. The math backs it up.
What do you think of this impending move? 🗯