The Centre’s move of levying a higher 28% goods and services tax (GST) on online gaming companies a year ago has taken away 20-25% margins of such firms, pushing them into losses, Head Digital Works founder and CEO Deepak Gullapalli told FE.
Before October last year, online gaming firms were paying an 18% GST on the platform fee, which is the commission they charge from the participants entering a game. The GST Council revised the rate on online gaming to 28% on full face value or deposits made by the participants to play games, effective October 1, 2023.
“Around 45% of our revenues are going towards GST payments,” Gullapalli said. “We are operating on negative margins and making loss currently, but it is not too much. Our revenues are going up as we have significantly invested in new customer acquisition over the last one year,” he said, adding that the GST issue, including the retrospective tax notices, have slowed down the industry.
Head Digital Works, an online skill-gaming platform, operates under the brand – A23. The company has over 70 million users across its real-money gaming verticals — Rummy and Poker.
The company is aiming to improve its margins to 15-20% over the next three-four quarters.
In a bid to achieve the same, Head Digital Works plans to cut expenses where possible, including lower cost of customer acquisition and retention. Besides, the company is looking to increase user engagement on the platform so that there are less instant withdrawals and the GST bonus given back to players remains in the system to an extent possible.
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Currently, the gaming firms are absorbing the higher GST impact and have not passed it on to consumers. “Passing the GST burden to consumers is currently ruled out because we don’t want competitors to have an advantage. The impact (of GST on companies) can be reduced by increasing the amount of time (of player engagement),” Gullapalli said.
“We are introducing tournaments, challenges, leaderboards, missions, and various features within the app that will increase the engagement of a consumer,” he added.
While the company did not disclose its FY24 numbers, Gullapalli said the revenues have grown over 30%. In FY23,
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