Players in crossfire as online gaming firms grapple with massive tax hit

livemint.com:

NEW DELHI : Playing real-money games such as rummy or poker might get more expensive as gaming startups scramble for ways to cope with the impact of higher taxes. Online gaming firms are staring at steep hits on their finances after tax authorities decided to bump up levies on the nascent sector to 28% of net revenue, from 18% earlier. “Of course, our operating margin will take a hit due to the increased tax rate.

In the short run, yes there will be an impact (on users and profitability)," said Trivikraman Thampy, co-founder and co-chief executive of online gaming startup Games24x7. He added that the company, which hosts RummyCircle and My11Circle, is working on finalising an operating model that would help it soften the tax blow while keeping impact on users minimal. “Our focus is on FY28, and we see plenty of opportunities for growth in the next five years," Thampy said.

Harsh Jain, chief executive of fantasy sports app Dream11’s parent firm Sporta Technologies, has signalled a similar near-term future. In an interview with Mint on 6 December, Jain said the company’s revenue would likely be hit by nearly 40% over the next two fiscal years, and Ebidta by 60%. Ebidta, or earnings before interest, depreciation, taxes and amortisation, is a key metric of operational profitability.

Jain attributed this to the company having to absorb some or all of the impact of the new tax rate, as well as needing to diversify and look at acquisitions to grow other monetisation avenues. He did not explicitly mention if the company’s users would be directly affected by the higher taxes. Other online gaming companies, while not passing on the tax burden, are finding different ways to soften the tax blow.