Mobile Premier League (MPL) to Lay Off 350 Employees Even as Quizzy Shuts Down in the Wake of GST Council’s Decision to Levy 28% GST on Player Deposits

The GST Council`s decision to impose a 28% GST on initial deposits in real-money games has jolted the online gaming industry, leading to significant repercussions for major gaming companies.

In the first significant fallout following this development, Mobile Premier League (MPL), a dominant player in India’s RMG industry, has announced plans to lay off 350 employees, nearly half its workforce. The decision, revealed in a memo to its staff on Tuesday, August 8, follows the recent GST Council ruling, resulting in an increased tax burden of 350-400% on the company.

In an emotional email to employees, the co-founder and CEO of MPL, Sai Srinivas, expressed his concerns, stating that while businesses can brace for a 50% or even 100% increase in taxes, this abrupt and significant hike has forced the company into making “some very tough decisions.”

He explained, “The new rules will increase our tax burden by as much as 350-400 per cent. As a business, one can prepare for a 50 per cent or even a 100 per cent increase, but adjusting to a sudden increase of this magnitude means we need to make some very tough decisions.”

Online gaming operators and industry bodies had warned there would be serious repercussions if tax was imposed on the full face value of bets or contest entry amounts. Though the Council adopted a softer stance in its August 2 meeting by declaring tax on the initial player deposits, it still amounts to an insurmountable tax hike from the current 18% GST charged on Gross Gaming Revenue or platform fees.

MPL is the country’s second-biggest online gaming startup, with a dominant presence in fantasy sports and interests in rummy and poker. The company’s move is one of the first visible fallouts of the GST Council’s decision.

A smaller player, gaming startup Quizy also announced it was shutting operations after being hit hard by the government’s decision.

Ironically the Union government seems unmoved by the gaming sector’s plight. Addressing a question in Rajya Sabha on August 8, Union Finance Minister Nirmala Sitharaman defended the GST Council’s decision to levy a 28% GST on online gaming, casinos, and horse racing.

The fate of the proposed GST Amendment Bills in the current Parliament session remains uncertain. The government had indicated its intention to enforce the decision by October 1, but recent events have raised questions about the proposed timelines. Notably, the August 4 cabinet meeting did not address the bills, leaving their timeline for enactment in doubt.

MPL Poker – Cutting Costs

Co-founded by Sai Srinivas, Shubh Malhotra, and Joe Wadakethalakal, MPL Poker is India’s second-biggest online gaming company. The company became India’s second gaming unicorn in September 2021 after raising an undisclosed amount in a Series E round at a pre-money valuation of $2.30 Billion. In February 2022, the firm acquired Germany’s leading game studio GameDuell, expanding its footprint in Europe.

Last November, MPL Poker – the poker subsidiary of MPL – announced it had crossed 25 Lakh players on its platform, claiming to have emerged as the country’s biggest online poker platform.

MPL leadership’s email to its employees, sent on Tuesday evening, makes it among the country`s first online gaming companies to undertake employee layoffs as a cost-cutting measure. However, this is not the first time MPL will be cutting its work force. The company had laid off around 100 employees in May when leaving the Indonesian market. However, the current situation has more far-reaching implications, affecting the entire Indian gaming industry.

In the present context, the move comes when the Union government is on the verge of amending the CGST Act. Once the Parliament approves it, states will follow by amending the respective SGST Acts, burdening the gaming industry with the new tax regime.

MPL’s leadership emphasized that their main variable costs are related to server infrastructure, personnel, and office facilities. With efforts already in place to reduce server and office costs, the company felt compelled to address personnel-related expenses, stating, “Regrettably, we have to let go of around 350 of you.”

The gaming giant detailed that it was performing well after turning EBITDA positive in December 2022. In June 2023, it recorded its best-ever month in business performance, beating the record in July.

According to ETTech, MPL Poker’s current valuation stands at $2.19 Billion, with the company having raised funds to the tune of $396 Million to date. Primary investors in MPL include Peak XV (earlier known as Sequoia Capital), SIG, RTP Global, Moore Strategic Ventures, Play Ventures, Base Partners, Telstra Ventures, and Founders Circle Capital.

Quizy Closes Down

Gaming startup Quizy has also felt the sting of the new tax regime, announcing the complete shutdown of operations. Founder Sachin Yadav expressed his frustration in a post on LinkedIn, pointing out that the industry has been hit hard by the removal of the ₹10,000 TDS exemption limit and a flat 30% TDS on all winnings. He added that the “introduction of a 28% GST rate on entry fees further compounded our woes and murdered the industry finally.”

Finance Minister Nirmala Sitharaman Defends Decision

The Union government has shown little sympathy for the gaming sector’s predicament. Union Finance Minister Nirmala Sitharaman, while responding to a question raised by retired Lt.Gen. and BJP member DP Vats., in Rajya Sabha on August 8, emphasized that this adjustment aims to enhance revenue inflow for the government.

The NITI Aayog estimates the sector reached $1.9 Billion in 2021, growing by 28%, Sithraman said, revealing that the casinos are currently paying 28% GST on the gross gaming revenue (GGR), while the online gaming industry and several horse racing clubs are paying 18% GST on the platform fees/ commission, which converts to 5-20% of full face value. Other horse clubs are paying 28% GST on full face value. While online gaming companies and horse racing clubs are opposed to the spike, levying 28% GST will result in higher revenue collection, she said.

On being questioned on the reason behind imposing the 28% rate and its potential impact on the growth and revenue generation of the three sectors, Sitharaman said that the GST rate and exemption are decided based on the recommendations of the GST Council, which consists of members from central and state/UT governments who together recommended 28% GST on actionable claims in the form of betting and gambling.

Uncertainty Over Listing & Approval of Proposed GST Amendment Bills

As the monsoon session of Parliament is underway, a pivotal question remains unanswered: Will the proposed GST Amendment Bills successfully navigate the path to listing and approval this session? The government intends to enforce the new tax regime by October 1, but questions about the timeline for enactment remain.

Surprisingly, despite a cabinet meeting on the same date, the August 4 charter did not include the much-anticipated bills for consideration. The amendments to the CGST Act 2017 and IGST Act 2017 appeared absent from the agenda, raising questions about the timeline for their enactment.

This situation has prompted conjecture that the government could be exploring an alternative approach, possibly opting to promulgate an ordinance to effectuate the proposed changes.

As discussions continue, the Central Board of Indirect Taxes and Customs (CBIC) has taken proactive steps by issuing an amendment to the Central Goods and Services Tax Rules. This action was executed under section 164 of the Central Goods and Services Tax Act, 2017, demonstrating the government’s commitment to navigating these complex legislative waters.

Though the final implementation date for the GST changes remains uncertain, the government’s decision to impose such a high tax has already begun to strike blows at the online gaming industry.