11 November 2022

Gaming platforms feel the heat of taxation, regulatory woes | Mint

NEW DELHI : A looming threat of bans and increased taxation may stem the growth of online gaming firms in India. These firms, most of which deal in real money gaming (RMG), have been growing at a fast pace over the past year even as the legality of RMG has been contested in courts and discussed among ministries. RMG includes online poker, rummy, and daily fantasy sports platforms, like Dream 11.

For instance, Gurugram-based RMG platform WinZO has seen a twofold increase in monthly active user base and a 10% increase in average time spent on the platform in the last 12 months, according to the company. The company claimed that it became the first ‘off-Play Store’ app to acquire 100 million users.

Google doesn’t allow platforms like WinZO to distribute through the Play Store since the business models of such gaming platforms aren’t in line with the tech giant’s policies. Fantasy sports firms, like Dream11, were also not allowed until recently, but a change in Google’s policies last month now allows them to put up their apps on Play Store.

Real-money gaming platforms have also been facing backlash from several states like Tamil Nadu.

The state government passed an ordinance earlier this month, banning online gambling platforms.

Additionally, a group of ministers (GoM) has been discussing the issue of taxation of gaming firms, which many executives say could cripple them, the same way it has for the crypto industry after the addition of new taxes earlier this year.

According to a gaming industry executive, who requested anonymity as he was citing internal company guidance, the annual revenue for online skill gaming companies (which includes RMG firms) is expected to touch ₹15,000 crore in 2022, up from ₹14,000 crore in 2021. It is projected to grow to ₹40,000 crore by 2025.

Roland Landers, chief executive of All India Gaming Federation (AIGF), said the gaming revenue is expected to grow in 2022 and beyond, but the pace of growth and investment may reduce due to the bans and regulatory uncertainty.

Revenues aside, the regulatory uncertainty has also affected these companies’ ability to raise funds. According to data sourced from Tracxn, gaming startups in India raised $212 million over 12 deals between October 2021 and September 2022, down from $424 million raised between October 2020 to September 2021 over 31 deals.

While gaming startups aren’t quite as cash rich as ed-tech platforms and social media firms, their runways will still drop if revenues dry up, increasing the need for raising funds. While investors said that gaming firms have healthy runways currently, an ongoing funding winter adds to their worries.

“Investors are being more mindful in a bear market, especially on the poor thought through web3 plays,” said Justin Shriram Keeling, founding general partner at gaming venture capital fund Lumika. Gaming platforms burn most of their cash on user-acquisition.

“The cost of acquisition of customers in gaming is very high in the initial stages. Most of the funding is required for this,” said Bharat Patel, co-founder, and director of Yudiz Solutions, a game development firm.

Neha Singh, co-founder of Tracxn, noted that the funding winter has impacted the sector the same way it has hit others. “Gambling regulations are outdated and there is no clarity on the regulations of internet-based games. Different states in India have different views on how to treat online games. Several states in India have banned or attempted to ban these types of games in the past. This regulatory uncertainty has made investors apprehensive,” she added.

Patel warned that investors will be forced to rethink future investments if they don’t see return on investment (ROI). “This will make investors very choosy about who they want to fund,” he added.

To be sure, the industry isn’t against regulations either. It actually wants taxation and regulatory efforts to be sped up. Jay Sayta, a prominent technology and gaming lawyer, said issues like addiction and financial loss to gamers have to be addressed by the government. “Dialogue with industry has to go on,” he added.

Industry stakeholders said that while discussions have happened on many fronts, and with many ministries, a solution doesn’t seem to be in sight yet. On Monday, union home secretary Ajay Kumar Bhalla held a meeting with representatives of various government agencies and the electronics ministry to discuss framing a central law for online gaming and betting.

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