India Imposes 28% Tax on Online Gaming and Gambling; Foreign Investment Hit

Source: Tencent Technology
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India’s Goods and Services Tax (GST) Council has imposed a 28% tax on the
turnover of online gaming and gambling industries.

The stock price of Indian gaming company Delta fell by more than a quarter,
and other online gaming companies also saw their stock prices decline on
Wednesday. This is due to the GST Council’s decision to levy a 28% tax on the
turnover of these companies.

This move is a setback for the online gaming industry, which has attracted
$1.5 billion (approximately ₹107.8 billion) in foreign investment. Industry
representatives stated that the tax will reduce their profits, and the
additional costs may be passed on to users.

Unlisted gaming companies like Dream11 and Mobile Premier League (MPL) have
attracted substantial investment. Dream11 is valued at $8 billion and is backed
by Tiger Global, while Peak XV (formerly Sequoia Capital India) has invested in
MPL.

Indian casinos will also be affected. Tax officials Vivek Johri stated on
Tuesday that the new 28% tax “will apply to the value of chips purchased by a
person before playing the game.”

Under current Indian laws, customers will still need to pay separate income
taxes on their winnings from online gaming or casinos.

Gaming company Nazara Technologies, which licenses games for some children’s
brands, said that the new regulation will have a minimal impact on its overall
revenue, as it will apply to the real-money gaming (RMG) business, which
accounts for 5.2% of its total revenue in 2023.

Nazara’s stock price fell by up to 14%, and OnMobile Global’s stock price
dropped by 9%, though it later recovered some of its losses.

Amit Kumar Gupta, founder of financial research firm Fintrekk Capital,
commented that valuations of private players might collapse due to the taxation
on casino entry fees and prepaid fees for mobile client games.

Delta Corp did not immediately respond to requests for comment, and Dream11
and MPL declined to comment.

As of Tuesday’s close, Nazara and Delta’s stock prices had increased by 21.6%
and 15.9%, respectively, while OnMobile had decreased by 11.9%.

Here is some related information about the recent tax changes on online
gaming and gambling in India:

Related Information

1. Taxation Impact on the Industry:
   • The new 28% GST on online gaming and gambling is expected to
     significantly impact the industry by increasing operational costs and
     potentially decreasing profitability.
   • Companies might pass on the extra costs to consumers, which could
     affect user engagement and revenue.
2. Effect on Companies:
   • Delta Corp: As a major player in the Indian casino
     and online gaming market, Delta Corp saw its stock price plummet by over
     25% following the announcement.
   • Dream11 and MPL: Both companies, which have
     attracted substantial foreign investment, are expected to face reduced
     profit margins due to the new tax regulations.
   • Nazara Technologies and OnMobile Global: These
     companies experienced stock price declines, though Nazara Technologies’
     impact is noted to be minimal compared to others.
3. Sector-Specific Impact:
   • The tax is applicable not only to online gaming but also to physical
     casinos. It affects the value of chips purchased before gameplay,
     thereby increasing the cost for players.
   • For companies providing real-money gaming services, such as Nazara
     Technologies, the impact is more pronounced, as these services
     constitute a significant portion of their revenue.
4. Current Legal Framework:
   • Indian law mandates that income from online gaming and casino
     winnings must be declared and taxed separately, in addition to the new
     GST on turnover.
5. Investor Reaction:
   • Financial experts, including Amit Kumar Gupta, have suggested that
     the valuation of private companies in the sector may suffer due to the
     increased tax burden.
   • The market has reacted variably, with some stocks recovering
     post-initial decline.
6. Government Stance:
   • The GST Council’s decision reflects the Indian government’s broader
     stance on regulating and taxing the online gaming and gambling sectors
     more stringently.
7. Industry Response:
   • Some companies, such as Delta Corp, have yet to respond publicly,
     while others, like Dream11 and MPL, have chosen not to comment on the
     matter.

Frequently Asked Questions (FAQs) about India’s New Tax on Online Gaming and
Gambling

1. What is the new tax rate on online gaming and gambling in India?

• The new Goods and Services Tax (GST) rate is 28% on the turnover of
  online gaming and gambling activities.

2. When did this new tax regulation come into effect?

• The GST Council announced the 28% tax on July 13, 2023.

3. How will this tax impact online gaming companies?

• The tax is expected to increase operational costs for online gaming
  companies, which may result in reduced profitability. Companies might also
  pass these additional costs on to consumers, potentially affecting user
  engagement.

4. What effect will this tax have on casino operations?

• For casinos, the 28% tax will apply to the value of chips purchased
  before gameplay, potentially increasing costs for players.

5. Which companies are affected by this tax?

• Major online gaming and casino companies such as Delta Corp, Dream11,
  Mobile Premier League (MPL), Nazara Technologies, and OnMobile Global are
  all affected by the new tax.

6. How have companies reacted to this tax change?

• Some companies, like Delta Corp, saw their stock prices fall
  significantly. Others, such as Dream11 and MPL, have faced similar declines
  but have not commented publicly.

7. What is the legal requirement for declaring winnings?

• Under Indian law, winnings from online gaming and casinos must be
  declared and taxed separately in addition to the new GST on turnover.

8. How might the new tax affect investors?

• The tax could negatively impact valuations of private companies in the
  gaming sector, as noted by financial experts. The market has seen varied
  reactions, with some stocks recovering partially after initial declines.

9. Are there any exemptions or special conditions for this tax?

• The tax applies to all forms of online gaming and gambling without
  specific exemptions. Companies providing real-money gaming services, like
  Nazara Technologies, are particularly impacted.

10. What should consumers expect in terms of costs?

• Consumers may face higher costs due to the increased tax burden on
  companies, which might be passed on through higher fees or charges for
  gaming services.