The Indian gambling industry is feeling the shockwaves as shares in several companies plummet after the Goods and Services Tax (GST) Council announced a 28% tax on money collected from customers. This has affected some of the top Indian online casinos. The new gambling tax rise has been in discussion for months. Discover the potential risks this carries for the casino industry in India.
The new tax rule, announced this week, mandates a 28% tax on the entire amount collected from players. Until now, gambling companies have only been paying a nominal tax on the fees charged for real-money games.
This is expected to severely impact the $1.5 billion online gaming sector's earnings. According to industry experts, these additional charges are likely to be passed on to customers. Furthermore, casino operators will also feel the brunt of this tax change, as the 28% tax will apply to the value of chips purchased before playing.
Shares of Delta Corp, the leading Indian casino operator, saw a drastic fall of over a fifth of their value on Wednesday. Online gaming firms have also experienced a decline. Nazara Technologies, known for licensing games for children's brands, ended 2.6% lower, and Onmobile Global concluded with a 1.1% decrease. Both shares initially dipped by as much as 14% and 9%, respectively.
Delta Corp's stock closed down by about 23%. The share price continued to tumble, falling another 5.18% in the following session to settle at Rs 179.55, amounting to a shocking 27.25% drop in just two days.
Industry analysts predict that Delta Corp may experience further selling pressure in the near future. The new uniform 28% GST could have a profound, lasting impact on the company's financials. Market expert Ravi Singh warned, "The stock price is likely to remain in a downtrend and touch the levels of Rs 160."
Furthermore, Vaibhav Kaushik, a research analyst at GCL Broking, has recommended avoiding the stock for the time being, highlighting the severity of the situation.
Beyond affecting the market shares of established companies, this tax change also poses a threat to the valuation of large start-ups such as Dream11 and Mobile Premier League (MPL). Industry insiders fear the valuation of these companies might plummet in private markets due to the new tax on upfront fees in mobile gaming.
For consumers, the impact could be profound. With the implementation of the new law, the total tax collection on player winnings could exceed 50%, including GST, platform commissions and income taxes. This implies that out of every $100 spent by a player, $28 will go towards GST, in addition to a $5-15 platform charge and a 30% tax deducted at source on any winnings. Experts warn that such charges could disincentivise players.
The Indian online gaming industry has seen a remarkable boom over the past five years, attracting a hefty $2.5 billion in foreign direct investment. However, this unprecedented tax change could threaten the industry's existence, shake investor confidence, and potentially lead to a funding winter.
In fact, there are concerns that many gaming companies may choose to relocate their businesses outside of India to mitigate the tax impact. The All India Gaming Federation has condemned the decision as "unconstitutional, irrational, and egregious," foreseeing hundreds of thousands of job losses in the online gaming sector.
Despite industry backlash, India's revenue secretary has indicated that the tax decision will not be reviewed or rolled back. Supporters of the new tax, like Siddhartha Iyer, a Supreme Court lawyer, believe the 28% tax is a "step in the right direction," drawing parallels to taxing alcohol and cigarettes to discourage people from these activities.
Meanwhile, others like Faisal Maqbool, a former gaming addict, argue for even stricter measures. "This is an addiction...I vouch for a total ban on these activities," he stated.
As the Indian gambling sector grapples with this new tax law, the debate between economic growth, investor confidence, and social responsibility continues. The ramifications of this policy will undoubtedly be watched closely by all stakeholders in the months to come.
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