GST Impact: Rush Gaming Universe Announces Layoffs Due to Tax Increase in Real-Money Gaming Sector

• ByStartupStory     |    August 11, 2023

Rush Gaming Universe, a casual skill gaming platform under Kavin Bharti Mittal’s Hike, is in the process of laying off approximately 55 employees, out of which 24 are non-full-time staff. This move comes as a direct consequence of the government’s imposition of a 28 percent Goods and Services Tax (GST) on the real-money gaming sector.

These cutbacks represent about 22 percent of the company’s workforce, Mittal told reports.

“Business is in the best shape ever. This 400% increase in GST is a bazooka pointed at us. We’ll need to absorb some of it,” Mittal said.

This situation echoes the recent layoffs made by Mobile Premier League (MPL), a unicorn in the esports and skill gaming sectors. MPL had let go of 350 employees, constituting around 50 percent of its India-based workforce, according to a report by Moneycontrol on August 8.

On August 2, the GST Council made the decision to uphold the original proposition of imposing a 28 percent tax on the full face value of real-money games. This applies uniformly to games of both skill and chance, disregarding suggestions from certain states for reconsideration. Nevertheless, the council did offer some relief by suggesting that GST should be applied to the total amount of money deposited by users to engage in real-money games, rather than on each individual bet. This change aims to avoid double taxation. Furthermore, the council committed to reviewing the levy after six months of implementation.

Leaders in the industry and other stakeholders have voiced concerns about the proposed tax regulations, which could result in a 350 percent to 400 percent increase in a company’s tax liability. This, in turn, could significantly impede the sector’s growth trajectory.

Saumya Singh Rathore, co-founder of WinZO, pointed out that the high tax rate on deposits (28 percent GST) would surpass the operating margins, potentially causing financial losses for companies due to the slim margins in this format.

The situation has led to a perceived threat to the thriving gaming sector, especially in the casual gaming sub-sector, which constitutes around 60 percent of India’s online gaming market.

“We are looking at a threat to the much-admired sunshine sector and a threat to innovation that created a category that is now 60 percent of the online gaming market in India – the casual gaming sub-sector,” Rathore said.

Sachin Yadav, co-founder of Quizy, a real-money gaming company, recently announced on LinkedIn that they were shutting down due to the substantial challenges posed by the recent GST changes.

In June 2023, Rush Gaming Universe reported crossing the Rs 2,500 crore mark in annualized gross revenue within two years of its launch. The company claimed fourfold growth over the past year and stated operational profitability since October 2022. It asserted a user base of 5.2 million monthly active users.

Hike’s investors include prominent names such as Tiger Global, Tencent, Polygon, JumpCrypto, Tribe Capital, Republic, and individuals like Rajeev Misra, Arjun Sethi, Aditya Agarwal, Elad Gil, and Mark Pincus.

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