Online Gaming Continues to Grow, but GST Change to ‘Moderate’ Monetization

The online gaming industry has experienced significant growth over the past few years, becoming a major segment of the global entertainment market. In India, the rise of mobile and internet accessibility has propelled the sector to new heights, with millions of gamers engaging in diverse genres from casual games to competitive esports. However, recent changes in the GST regulations have introduced new challenges for the industry. Starting October 2023, a uniform 28% GST is levied on the full-face value of bets placed in online gaming, casinos, and horse racing regardless of “games of skill or chance”. This regulatory shift aims to streamline taxation but poses potential hurdles for monetization strategies within the industry.

The Growth of Online Gaming

The online gaming industry has witnessed remarkable growth globally and in India. In 2023, the global online gaming market generated approximately $26.14 billion in revenue, and this figure is expected to reach $32.56 billion by 2027​​. India’s online gaming market, driven by a young demographic and increased mobile internet usage, grew at a CAGR of 28%, reaching INR 16,428 crore in FY23 and is projected to double by FY28​. Technological advancements such as AR, VR, and the rise of mobile gaming have significantly contributed to this growth, providing more accessible and immersive gaming experiences​.

The recent amendments to India’s GST have significant implications for the online gaming industry. This change aims to standardize the tax structure, replacing the previous varied rates that depended on the nature of the game​.

Previously, different tax rates were applied to various gaming activities, often creating confusion and inconsistencies. The new legislation seeks to eliminate these disparities by uniformly taxing all forms of online gaming under the same rate. This 28% GST is calculated on the total amount paid or payable to the supplier, including money deposited for participation, without any deductions for refunds or unused amounts​​.

The government’s rationale behind these changes is twofold: to simplify the tax framework and to address concerns regarding gambling addiction, especially among the youth. By imposing a higher tax rate, the government aims to discourage excessive betting and ensure a more regulated environment for online gaming. However, industry stakeholders have raised concerns that this high tax burden might push players towards unregulated offshore platforms, potentially reducing government revenue and stifling the growth of the legitimate gaming sector​​.

With the new GST rate applied to the total amount paid or deposited by players, game developers must reconsider their monetization models. In-app purchases, subscription models, advertisements, and premium versions are the primary methods impacted.

In-app purchases now carry a higher tax burden, potentially reducing player spending. Subscription models might need price adjustments to maintain profitability. Advertising revenue could see changes as higher operational costs affect overall budgets. Premium versions may become less attractive due to increased upfront costs. These challenges necessitate innovative strategies, such as offering incentives to retain players and adjusting game economics to absorb the higher tax​. 

Despite the expanding base of online gamers willing to make payments, the recent increase in the GST is expected to “moderate” monetization per user. “Pay to Play games have historically been the largest revenue source and key driver for India’s gaming sector. However, their share will decline over the next five years due to the high tax burden. While the industry fundamentals will support a growing user base, this growth will not translate into equivalent user monetization because of recent tax policies,” the report stated.

India currently has about 560 million gamers, with 144 million paying for games in 2023. By 2028, the total gamer base could reach 916 million, with 240 million paying for games.

Currently, approximately 5.8% of overall domestic gaming spending comes from in-app purchases. This spending is projected to grow at a compound annual growth rate (CAGR) of about 35% from 2023 to 2028, increasing its share of overall domestic spending to 13.6% by 2028, the report predicted.

Meanwhile, the Indian gaming ecosystem has raised $2.6 billion from domestic and global investors since 2019. The number of Indian game development companies has also surged, from 25 in 2015 to over 900 in 2023, according to the report.

At LolzSoft, we are committed to creating engaging and educational games that bring joy and learning to players of all ages. As we navigate the recent GST changes, we remain focused on innovation and excellence. The new GST rate presents challenges, but we are adapting by optimizing our monetization strategies and ensuring compliance. Our unique approach blends creativity with education, making our games both entertaining and impactful. Despite the tax hurdles, we continue to develop exciting projects for our customers in the B2B arena. Stay tuned for our latest releases, which promise to deliver unique and enriching gaming experiences that align with our mission of making a positive impact through play.