India's Supreme Court Halts GST Notices for Online Gaming, Raising Industry Hopes

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 generated optimism, especially among investors. However, Goan finance consultant David Pinto warns that while this move provides a short-term relief, it does not necessarily indicate a long-term reduction in the tax burden for the industry.

Pinto, who closely tracks the financial landscape of the gaming sector, believes that even if gaming companies achieve legal victories in court, a drastic reduction in taxation remains unlikely. The Supreme Court's decision to pause GST show-cause notices worth Rs1.12 trillion ($13.5 billion) against online gaming firms has created a temporary sense of relief. However, Pinto stresses that investors should not be overly optimistic, as the cases are still pending, with hearings expected to commence only in March 2025.

“It’s just step 1 of a longer battle for the companies,” Pinto told AGB. While the pause means firms will not face immediate coercive actions or be required to make deposits with tax authorities, the consultant cautions that the notices themselves are not time-barred and will persist throughout legal proceedings. Despite this temporary reprieve, Pinto believes that even if gaming companies ultimately prevail in court, the likelihood of a major tax reduction 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 says. While some minor adjustments or “tweaks” might be made in the future, he suggests that the existing tax structure is unlikely to change unless there is a significant policy shift.

Impact of 28 Percent GST on Gaming

The introduction of a 28 percent GST on online gaming in India has sparked widespread concern about its effects on the industry. Pinto acknowledges that the impact has been mixed, particularly regarding operational costs and shifts in 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,” he advises.

Some gaming companies have managed to grow despite the heavier tax burden. Gameskraft, the operator behind platforms such as Ludo Culture and Rummy Culture, reported a 30 percent revenue increase. However, Pinto points out that its costs surged by 72 percent, largely due to a doubling of advertising expenditures, which has resulted in thinner profit margins.

Similarly, fantasy sports company M-League, which operates Mobile Premier League, recorded a 21 percent increase in losses, although this was partially attributed to a fair value loss on financial instruments. Without this factor, Pinto observes, the company’s losses would have actually declined by 10 percent. While the feared industry-wide collapse—an “Armageddon” scenario—has not occurred, Pinto predicts that profit margins will remain lower than in the pre-GST period.

“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,” he notes. The company's share price has also struggled, indicating that the industry is still grappling with the tax regime’s implications.

Regulatory Landscape

As regulatory frameworks for online gaming continue to evolve, attention is now focused on the Supreme Court hearings set for March 2025, which will examine the legality of the 28 percent GST on bet value. Pinto highlights that gaming companies face tax demands that sometimes exceed their overall valuations, making investors anxious about the court’s ruling.

“There’s a lot of speculation around this, and all investors will be eyeing this,” Pinto states. However, he remains skeptical about the possibility of major policy changes. Since the introduction of the 28 percent GST, government tax collections from online gaming have surged by 412 percent in six months, bringing in an additional $600 million in revenue. Pinto argues that this growth in tax revenue reduces the likelihood of any meaningful relief for gaming firms.

In the land-based gaming sector, Delta Corp, one of India’s largest casino operators, is currently developing a new land casino in Dhargalim, Goa. However, the project has faced environmental challenges, with petitions filed by activists objecting to certain aspects of the construction. Pinto suggests that additional environmental concerns may arise as the project progresses due to its scale. Nonetheless, he acknowledges that Goa has long been a hub for land-based gaming, and the Dhargalim casino represents a significant development for the industry.

Another key development in land-based gaming is Delta Corp’s decision to restructure its business. The company plans to split into three entities, with Delta Corp focusing on gaming and cruises, while Delta Penland will oversee its hotel and real estate operations. This move is expected to attract external capital for the Dhargalim casino project, potentially securing funding from new investors.

Adapting to Changing Consumption Patterns

As India’s gaming market expands, consumer habits are evolving, particularly with the growing accessibility of mobile gaming. “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,” Pinto emphasizes. To remain competitive, gaming firms are prioritizing mobile optimization, ensuring that their platforms function smoothly on a range of smartphones, not just high-end devices.

Pinto also highlights the transformative role of 5G technology and improved payment systems in shaping the future of online gaming in India. With 5G rollout, operators can now offer high-quality gaming experiences that were previously limited to developed markets. “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.”

Advancements in payment systems are also expected to facilitate smoother in-app purchases, potentially driving further growth in the online gaming sector. Pinto predicts that casual gamers will benefit the most from these improvements, especially as younger players increasingly embrace sports gaming and eSports as mainstream entertainment, diverging from traditional card games.

By fLEXI tEAM