The recent intervention by India’s Supreme Court to temporarily halt the Goods and Services Tax (GST) show-cause notices against online gaming companies has stirred optimism, particularly among investors.
However, Goan finance consultant David Pinto cautions that while this is a welcome reprieve, it might not mark the beginning of a drastic reduction in the tax burden for the industry in the long term.
Pinto, who has been closely monitoring the gaming sector’s financial landscape, argues that even if gaming companies succeed in the courts, a significant reduction in taxation is unlikely.
The Supreme Court’s decision to temporarily halt GST show-cause notices worth Rs1.12 trillion ($13.5 billion) against online gaming companies has created a temporary sense of relief. However, Pinto emphasizes that investors should not get ahead of themselves. He stresses that the relief is “currently only temporary,” as the cases are still pending, and hearings are not expected to begin until March 2025.
“It’s just step 1 of a longer battle for the companies,” Pinto told AGB. While the suspension means that companies will not face immediate coercive demands or be required to make deposits with the authorities, the expert warns that the notices themselves are not time-barred and will continue throughout the proceedings.
Despite this temporary setback for the tax authorities, Pinto believes that even if gaming companies ultimately succeed in court, the likelihood of a significant reduction in taxation remains low.
“The government is benefiting from the tax increase. The companies have not crashed despite a growth slowdown. And the public isn’t bothered by it,” he states. He suggests that while there may be some adjustments or “tweaks” in the future, the current tax regime is likely to stay in place unless there is a major shift in policy thinking.
Impact of 28 percent GST on gaming
The implementation of a 28 percent GST on online gaming in India has raised significant concerns about its impact on the industry. Pinto acknowledges that the effects of the policy have been mixed, especially in terms of operational costs and consumer behavior. “For FY24, in which half the year was under the new framework, we should be careful not to put complete reliance on the performance of this year,” Pinto advises.
Some companies in the online gaming sector have shown growth despite the added tax burden. For example, Gameskraft, which operates platforms like Ludo Culture and Rummy Culture, reported a 30 percent rise in revenue. However, Pinto highlights that the company’s costs also surged by 72 percent, primarily driven by a doubling of advertising expenses. This has led to lower profit margins.
Similarly, fantasy sports company M-League, which operates Mobile Premier League, saw a 21 percent increase in losses, although this was partly due to a fair value loss on financial instruments. Without this, Pinto observes, the company’s loss would have decreased by 10 percent. While the worst-case scenario—the “Armageddon” of the industry crashing—hasn’t materialized, Pinto predicts that profit margins will likely remain lower than in the pre-GST era.
“In the casino sector, the major publicly listed entity is Delta Corp, and we see that their revenue hasn’t grown over the last year, even when we look at their divisions segment-wise,” Pinto adds. The company’s share price also hasn’t performed well, indicating that the industry is still grappling with the implications of the new tax regime.
Regulatory landscape
As the regulatory landscape for online gaming continues to evolve, all eyes are on the Supreme Court hearings scheduled for March 2025, which will address the legality of the 28 percent GST on bet value. Pinto highlights that, with billions of dollars in tax demands for many gaming companies—sometimes far exceeding their valuation, investors are anxiously awaiting a resolution.
“There’s a lot of speculation around this, and all investors will be eyeing this,” Pinto notes. However, he remains cautious about expecting any major shifts in policy. The government’s tax collection on online gaming has increased by 412 percent in the six months following the implementation of the 28 percent GST, amounting to an additional $600 million in revenue. Pinto believes that this growth in tax revenue has made the government less inclined to reduce the burden on gaming companies.
In terms of land-based gaming, Delta Corp, one of India’s largest casino operators, is currently constructing a new land casino in Dhargalim, Goa. The project has faced some environmental challenges, with petitions filed by activists against certain aspects of the construction. Pinto suggests that there may be further environmental objections as the project progresses, due to its scale. However, he points out that Goa has long been a hub for land-based gaming, and the construction of the Dhargalim casino is seen as a significant development in the industry.
Another interesting development in the land-based gaming sector is Delta Corp’s decision to demerge its business. The company plans to split into three parts, with Delta Corp focusing on gaming and cruises, while Delta Penland will handle its hotel and real estate business. This restructuring is expected to bring in outside capital for the Dhargalim casino project, with the potential for a fund infusion from external investors.
Adapting to changing consumption patterns
As the gaming market in India continues to grow, Pinto notes that consumer behavior is shifting, particularly as mobile gaming becomes more accessible. “The major factor that any online gaming company will have to remember is that if it doesn’t work on the smartphone, it isn’t going to work out,” he emphasizes. Gaming companies are adapting by ensuring that their platforms are optimized for a wide range of smartphones, not just high-end devices.
The consultant also highlights the increasing role of 5G technology and improved payment systems in shaping the future of online gaming in India. With the rollout of 5G, operators will be able to offer Indian consumers high-quality gaming experiences that were previously only available in developed countries. “The difference will be significant,” Pinto says. “Operators will be able to provide Indian consumers some of the best quality products in gaming, as the internet that a consumer is receiving is allowing them to keep pace with a developed country.”
The improvement in payment systems is also expected to make it easier for consumers to make in-app purchases, which could further drive growth in the online gaming sector. Pinto predicts that this will particularly benefit casual gamers, especially as younger players continue to embrace sports gaming and eSports, which are viewed more as entertainment than traditional card games.
