With real-money gaming set to face muted growth due to new tax policies, experts anticipate that the growth of the Indian gaming industry will be driven by increased in-app purchases and ad revenues.
While the Indian gaming industry would continue to grow, its real-money gaming (RMG) segment would take a hit from the recent tax policies on the gaming industry, according to a report by Lumikai, a gaming and interactive media venture capital firm. India’s gaming market hit $3.1 billion in fiscal year 2023 as compared to $2.6 billion in fiscal year 2022. However, the new taxes have brought down the projected growth of the Indian gaming industry from crossing $8.6 billion in fiscal year 2027 to $7.5 billion in fiscal year 2028, the report pointed out.
The Indian government had imposed a revised 28 percent Goods and Services Tax (GST) on online gaming, which includes real-money games and fantasy sports. The previous GST on online gaming in India was 18 percent. The tax deducted at source (TDS) charged on winnings by a user also saw a change. Earlier, online gaming platforms in India charged a 30 percent TDS on any winnings drawn by users above Rs. 10,000. However, according to the new rules, while the deduction of 30 percent TDS on winnings still stands, the threshold of Rs. 10,000 has been removed. It is to be noted that RMG revenues constitute around 60 percent of the market size of the Indian gaming industry.
Spandan Bora, a Research Analyst at the Centre for Monitoring Indian Economy (CMIE), said that imposing high taxes on specific products serves a dual purpose. “Apart from being a means to generate revenue for the government, these taxes are employed to deter the consumption of goods that are seen as potentially harmful to society,” he said. The government categorises items such as alcohol, cigarettes, and gambling not as essential commodities but as luxury goods, thereby subjecting them to sin taxes, he said. “Now online gaming has been added to this category to discourage addictive gaming behaviours and simultaneously capitalise on the revenue potential within the industry,” he added.
A representative of a game-developing company based in Bangalore said that while the taxation policies will not affect companies that produce casual or mid-core games, they will affect RMG companies. “Casual games such as board games and puzzles and mid-core games depend on ad revenue and in-app purchases for their income. However, this is not the case with RMG companies that offer users a chance to win real money through online games and fantasy sports against an initial investment. The new tax liabilities will hit the growth of this sector,” he said.
The popularity of gaming in India can be attributed to the availability of smartphones and good internet connectivity, he said. And the Indian gaming industry would continue to see growth despite the taxations, as it would be driven by the income generated through in-app purchases and ad revenues, he added. He also lauded the government’s decision to officially recognise esports as part of multi-sports events under the Ministry of Youth Affairs and Sports. “This move will provide a platform and recognition to the gamers,” he added.
Varun, a college student, said that the growth of the internet and affordable data plans facilitated him to play games. “Especially during the pandemic when outdoor activities came to a halt, I shifted to playing games online. I started with casual computer games and mobile games and later moved to online games. While mobile games offer better control, computer games offer better graphics for users,” he said. He makes in-app purchases or buys online games but tries to keep it to small purchases. Some games require one to make these purchases to enhance their performance, he added.
Siddharth, who has been playing games for over five years now said that games are a way for him to get over boredom and to socialise with his friends. “It is the graphics of these games that attracted me. And once you are hooked, before you realise, you end up spending four to six hours a day on these games and make in-app purchases to enhance your performance or to achieve in-game tasks,” he said.
India currently has 568 million gamers of which 25 percent are paying users, according to the report by Lumikai. Over 58 percent of these users partake in in-app purchases with 62 percent of users saying that UPI is their preferred mode of transaction. Gamers in India spend an average of 10 to 12 hours weekly on gaming, an increase from the time spent on gaming in the previous years. With 15.4 billion downloads, India is ranked second after China for mobile game downloads. The report projects that all these factors would facilitate further growth of the Indian gaming industry despite the new taxes on the RMG segment.
Notably, India has seen three unicorn companies, privately owned startups with a valuation of over $1 billion, in the gaming industry over the last three years.
