06.12.2023: Games 24×7 hopeful that industry will overcome higher GST levy

Games 24×7 co-founder and co-CEO Trivikraman Thampy on Tuesday said that the online gaming industry will overcome the impact of the government’s move to levy 28% GST on full face value or deposits they receive from the participants.

“While it will set the industry back by a couple of years, it is not going to kill it. I think it gives us a space and the opportunity to innovate, to create and to continue to grow sustainably,” Thampy said in an interaction with FE on the sidelines of the Indian Gaming Convention event on Tuesday.

However, he added that lower scale businesses will get affected owing to higher taxation structure, in case they do not come up with creative and innovative ideas and business models.

Thampy said he’s hopeful of winning in the court the case the industry has filed against the tax notices with retrospective effect.

The government sent 71 notices to online gaming firms demanding retrospective GST of around Rs 1.12 trillion. Games 24×7 has got a tax notice to the tune of about Rs 20,000 crore, according to industry estimates.

“We are optimistic because we think obviously everybody who has challenged the law, their interpretation of the law, was correct,” Thampy said.”If we are not optimistic, we would not be filing in court,” Thampy added.

The notices were sent after the finance ministry notified that online gaming companies will have to pay 28% GST on full face value or deposits they receive from the participants. These companies, till the notification came in October, were charging 18% GST that too on the platform fee or the gross gaming revenue.

The government issued tax demands because it said since betting or gambling has always been taxed at 28%, therefore, these are liabilities for the online companies and should not be considered as retrospective taxation.

The companies such as Games 24×7, Dream Sports, etc, have challenged the tax demands in the courts on the pretext that their games are games of skill and do not come under betting or gambling, and therefore the show cause tax demand notices should be quashed.

Games 24×7 began its operations in 2006. The company, which entered the unicorn club in March 2022, is backed by marquee investors like Tiger Global, The Raine Group, and Malabar Investments. The company operates skill games such as RummyCircle and My11Circle.

Lately, after the GST rate of 28%, companies including Games 24×7 have been absorbing the impact so far. “That’s what the industry is trying to figure out what the happy kind of middle ground is. And if we are to pass on some tax, how do we do that without affecting user enthusiasm for gaming?” Thampy said.

On the stance which the investors are taking in the real money gaming segment, Thampy said, “investors’ interest in the space is still pretty strong. However, since there is a transition phase to a new tax regime, they are in a watch mode”.

“I think six months down the line, investors will also have a better sense of what the financial profile of these businesses look k like,” he added.

Unlike some other gaming players in the segment who got impacted by the GST rate hike, Games 24×7 said the company has no plans to layoff employees. “We are investing in growth and we are very excited about the future. It’s just absolutely no question of us laying off anybody,” Thampy said.

The company is currently focusing on evolving its business model in light of the new GST regime. While Thampy did not rule out possibilities of diversification and looking at international markets, he said the biggest focus continues to be Rummy and fantasy businesses for the company.

In FY22, Games 24×7 revenue fell 24.4% YoY to Rs 1,169 crore. The company’s losses stood at Rs 282 crore in FY22, compared to Rs 110 crore profit in FY21.

Source: https://www.financialexpress.com/business/brandwagon-games-24×7-hopeful-that-industry-will-overcome-higher-gst-levy-3329185/

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