Explained: Why Fantasy Cricket Companies Are Hit Badly By The Latest Tax Policy: The burgeoning sector of fantasy cricket in India has recently hit a significant roadblock. The Indian government’s latest tax policy, implementing a 28% Goods and Services Tax (GST) on online gaming, has caused a stir in the industry. Fantasy cricket companies like Dream11, with over 16 crore active users, are severely impacted by this new rule. Here’s why.
The GST, by nature, is a destination-based, multi-stage tax levied on every value addition. It aims to streamline India’s tax structure, but its implementation on online gaming has led to a significant disruption in the fantasy sports industry.
Now, when a user invests ₹100 into a fantasy cricket match, the GST consumes ₹28 right off the bat. This means that the user can only use ₹72 to play, right from the start. However, the financial hit doesn’t end there. If the user then wins, say ₹54, a 30% Tax Deducted at Source (TDS) applies, further slashing the winnings.
This new tax structure is quite detrimental to the user experience. Ashneer Grover, an industry expert, voiced his concerns about this policy change. In his opinion, the hefty taxes are disincentivizing users from participating in fantasy cricket. He also noted that the government’s expectation of users to pay such high taxes, only to get diminished returns, was unrealistic.
Grover also lamented the potential downfall of the fantasy gaming industry due to this new tax policy. An industry that was once flourishing and had potential valuations of up to $10 billion, now stands at risk. The burgeoning industry, which was attracting significant investments and driving job creation, now faces uncertain times. Grover’s sentiments reflect a widespread sentiment in the industry, signaling the devastating blow this new policy could deal.
Explained: Why Fantasy Cricket Companies Are Hit Badly By The Latest Tax Policy
Furthermore, the issue doesn’t stop at just fantasy cricket. Other online gaming segments, including horse racing and casinos, are also impacted by the 28% GST. This could be a significant setback for the entire online gaming industry, which was rapidly growing and evolving in India.
The overarching question now is how these companies can adapt to the new tax regime. With less earnings and increased tax obligations, survival will be a tough challenge. In addition, attracting and retaining users with decreased winnings will also be a major hurdle.
In response to these challenges, Grover suggests that startup founders should consider getting involved in politics. Having representation in the political space could help ensure that the interests and concerns of the industry are adequately addressed.
The new tax policy has dealt a severe blow to fantasy cricket and the wider online gaming industry. Companies are grappling with reduced earnings and an increasingly disgruntled user base. The long-term impact of these changes will undoubtedly affect the growth and development of this once-booming sector. While companies are still processing the changes and strategizing their next steps, one thing is clear – the monsoon season for fantasy sports in India seems to be over, at least for now.
🚨 28% GST will be Levied on
• Horse Racing
• Online Gaming
PS – Dream11 has Over 16 Crore Active Users and Posted ₹3841 Crore Revenue in FY22
No Wonder why Government wants to Tax
— Ravisutanjani (@Ravisutanjani) July 11, 2023
RIP – Real money gaming industry in India. If the govt is thinking people will put in ₹100 to play on ₹72 pot entry (28% Gross GST); and if they win ₹54 (after platform fees)- they will pay 30% TDS on that – for which they will get free swimming pool in their living room come…
— Ashneer Grover (@Ashneer_Grover) July 11, 2023
The new tax policy’s effects on fantasy cricket companies are multi-fold, potentially causing a significant shift in the industry
Firstly, the financial viability of these companies will be under severe scrutiny. The increased tax burden may lead to a reduction in profits, making it difficult to sustain operations. In addition, companies might be forced to increase their commission or reduce prize money, which could lead to decreased user interest.
Secondly, the tax policy could affect the industry’s growth trajectory. Fantasy cricket and online gaming had been expanding at a fast pace in India, creating jobs and attracting foreign investment. However, the new tax policy could dampen this growth, leading to a slowdown in job creation and potential capital flight.
Thirdly, there’s a potential for a shift in consumer behaviour. With the reduced pot of winnings due to the high GST and TDS, users might turn away from fantasy cricket platforms. This could lead to a decline in user engagement and consequently, the overall user base.
Finally, this tax policy might also impact the overall startup ecosystem in India. A large part of the startup culture is built on innovation and disruption. If key sectors like online gaming and fantasy sports face such significant tax hurdles, it could discourage entrepreneurial spirit, slowing down India’s thriving startup scene.
In conclusion, while the full impact of the new tax policy will only be evident in the long run, its potential effects pose serious challenges to the fantasy cricket and online gaming industry in India. As companies strategize their response to these changes, it’s clear that the landscape of fantasy sports in India will never be the same.
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