NEW DELHI: Seeking an independent statutory regulator like Sebi to manage the affairs of the online gaming industry, Harsh Jain, the co-founder and CEO of the country’s most valuable gaming company Dream11, has said “the majority of companies will shut down” in case the Centre continues to insist on its notice to recover over Rs 1.1 lakh crore in GST demands, including those slapped retrospectively (stayed by Supreme Court on Jan 10).
Dream11, which itself faces a Rs 28,000 crore GST demand, has said the over 400 gaming companies involved in the GST notices do not have more than Rs 10,000 crore with them to make up for the tax demand. “All the big financial numbers that you see for us are in terms of our valuations (at the time of fund raises). But valuations can’t pay taxes. The full industry will shut down if forced to pay the tax demand,” Jain told TOI.
The GST Council had on October 1, 2023, imposed a 28% tax on the full face-value of player collections on online real-money gaming platforms instead of the previous 18% on the revenue of companies. In what made matters worse for the industry, the govt said that the tax will apply retrospectively, covering transactions from August 2017 to October 1, 2023.
Jain, who had co-founded Dream11 in 2008 with Bhavit Sheth, says this demand is unviable and untenable.
Dream11 had become a unicorn in April 2019, and was last valued at $8 billion when it raised funds in 2021. However, its financial numbers are a shade of the valuations. In fiscal FY23, Dream11’s parent Dream Sports had a consolidated revenue of Rs 6,581 crore (up 62% over Rs 4,065 crore), and profits of Rs 188 crore (up 32% over Rs 142 crore). However, its auditors had said then that the GST demand towards the company leads to a “material uncertainty which may cast significant doubt on the group’s ability to continue as a going concern.”
Jain said while the new GST rates are leading to a windfall for the govt, the industry is in a shambles. Moreover, the revenue and profitability of even the larger companies has been hit very badly, with not many avenues to gain from. “Govt’s collections went up from around Rs 3,000 crore (before the GST rate changes) to Rs 16,000-17,000 crore under the new GST rates and TDS. However, the industry’s revenue went down by 30-40%, and profits slipped by 60-70%.”
He said even the venture capital funds dried up. “The VC money went away. Many companies have shut shop, and many lost jobs. While the Top 10 larger players are still profitable, their earnings are now down by 60-70%, and they accounted for around 90% of GST payments.”
Jain said just like the creation of Sebi had led to a clean-up of the stock markets, there is a need for a similar independent body for gaming companies. “In any market, you’ll have people doing wrong things until regulators step in. We really hope that regulations come in gaming. We need a Sebi-like body for gaming. We’ve been waiting for regulations for almost two years. Hope the IT ministry starts working on this.”
He said that rather than seeking higher GST collections from companies, the GST council should look at lowering rates for the platforms with the tax being charged on gross gaming revenue (GGR) and not on the full value of collections from players.
Jain also spoke about offshore gaming companies, many of whom — he claimed — were operating illegally in the country, dodging govt taxes, and engaging in promoting betting rather than engaging in skill-based challenges.
