E-gaming cos offer cashbacks to ride out GST storm
The Indian Express earlier reported that as the industry deals with the fallout of the new GST regime, online gaming companies have come up with a new idea to avoid losing customers – by absorbing the GST deduction and compensating users for it for at least the next two to three years.
Companies like Dream11, Mobile Premier League (MPL), and WinZO have all started cashback schemes to foot the bill for the GST deduction of 28 per cent.
This, executives said, can only be sustained for the next few years by the bigger companies. “The bigger companies can afford to absorb the GST costs for as long as 2-3 years. But the smaller ones simply do not have the resources for it, and will have no option but to shut down,” a senior industry executive said, requesting anonymity.
“If a user is depositing Rs 100 in their wallet, they do not want to see only Rs 78 being credited. The moment you pass on the GST cost to your user, there is going to be a significant drop off,” the executive added.
It could shape up to be a situation where the big players only have to wait till the smaller companies run out of money. However, the actual contest that bigger companies are foreseeing is from offshore platforms.
“The big players for now just have to wait out their immediate competitors. It is just a matter of who has deeper pockets to keep compensating users for the GST deduction. Also, you have to remember that the gaming companies are not just fighting their domestic rivals, but also offshore platforms – if they start passing on the deduction to the user, they may move to offshore companies where the compliance with law can be dubious,” a second executive said.
There is a sense within the industry that the market will eventually have only three or four big companies that will manage to ride out the storm.
“While in the near term it will kill off a number of small gaming companies, in the longer term it will also consolidate the market because the entry barrier to start a business in the sector will be very high. You have to be able to offer discounts from day one which may not be possible for newer entrants,” the first executive said.
“We are heading towards a situation where there will be at best, 3-4 companies that will eventually survive in the coming few years,” said the second person.
As was reported earlier, Dream11, the most popular fantasy app, has started offering users ‘discount points’ to offset the cost of the GST deduction. If a user adds Rs 100 to their account, they will receive Rs 78.12 as the deposit amount (after accounting for the 28 per cent GST deduction of Rs 21.88), but the exact deduction will be offered to the user by Dream11 as part of discount points.
In effect, this means that if Dream11 was not absorbing the GST hit, a user’s balance on the deposit of Rs 100 would have shown Rs 78.12. So, basically, Dream11 is paying the remainder Rs 21.88 to keep the total balance at Rs 100 so that the user does not have to pay additionally to take the balance to that amount.
However, in Dream11’s case, 22 per cent of the amount used to join contests will be deducted from a user’s discount points balance after all other available discounts are applied at the time of joining contests. Discount Points will be valid for 90 days from the date of credit.
MPL, which also offers a fantasy platform along with other games on its app, is also giving a cashback to users which is exactly the amount of the GST deduction. This paper added Rs 50 to an MPL wallet, and Rs 10.93 was deducted from it as GST charges, but MPL credited the wallet with Rs 10.93 to keep the original deposit of Rs 50 intact.
WinZO, which aggregates different online games such as Poker, Ludo and Rummy on a single platform, is offering users a “bonus” ranging from Rs 10-Rs 50 depending on the amount a user deposits in their account. For every Rs 100 deposited, WinZO is offering a bonus of Rs 50.
As the amended GST rules came into force, concerns about compliance and the applicability of the amended legal provisions have been raised as some states are still in the process of clearing the amendments for their respective State GST (SGST) laws.
The All India Gaming Federation in a letter on Saturday to the Ministry of Finance, a copy of which has been seen by this paper, asked the government to reconsider the amendments, citing the fact that around 15 states are yet to make changes to their respective GST statute
