The Central Government’s decision to impose a 28% Goods and Services Tax (GST) on online gaming, betting, and gambling is undeniably a significant move. This decision was officially declared during the 50th GST Council meeting held on July 11th 2023 and further elucidated in the subsequent 51st GST Council meeting held on August 2nd 2023.
What are the implications for gaming companies and their employees due to the increase in GST rate? There’s no denying that this choice by the government will have a detrimental impact on employment within the gaming sector. With the introduction of the tax rate, companies will be required to allocate a larger portion of their earnings towards taxes, placing an additional burden on them. As a result, this could lead to the unfortunate outcome of employee layoffs.
The most evident consequence of workforce reductions is felt by the individuals who are impacted. Being let go from a job can be a deeply distressing occurrence, impacting both one’s finances and emotional well-being. Alongside the loss of income, those who have been laid off might encounter difficulties in securing new employment, particularly if they possess highly specialized skills or extensive experience.
Initiating a series of layoffs, Mobile Premier League (MPL), a prominent player in the industry, was on the verge of releasing 350 employees, constituting half of its total workforce. The driving force behind this step was the recent enactment of a new 28% GST rate by the government, applicable to revenue derived from online gaming. The revised GST rules will place a higher tax burden on the company, ultimately steering the decision towards implementing the layoffs.
Read More: New GST Rule; 28 % GST on Real Money Gaming: MPL to Lay Off 350 Employees
It’s comprehensible that companies might be compelled to let go of employees when their financial situation becomes untenable. In situations where companies lack sufficient working capital funds, significant layoffs tend to be favoured. The rationale behind cost reduction through employee terminations is that if a company is unable to provide salaries, it cannot sustain the employment of its staff over extended periods. This has become a common strategy for companies to easily manage cost reduction or navigate through financial uncertainties.
It’s quite astonishing that the decision to lay off 350 employees from MPL’s workforce could potentially only serve to contribute taxes to the government. There’s uncertainty regarding whether the implemented 28% GST rate will genuinely lead to an increase in revenue.
Implication of Layoffs on Economy
Workforce reductions can have an impact on the larger economy in addition to their effects on the affected employees. Consumer spending may decline as a result of significant job loss, which may then have an impact on firms that depend on consumer spending. Additionally, due to the drop in the number of people employed who pay taxes, layoffs might result in a fall in tax earnings. The amount of direct taxes that the government collects will decline.
Layoffs of 91 Companies
The start of 2023 has been difficult for technology employees worldwide, with 91 companies laying off over 24,000 tech staff in the first 15 days of the month. This is a sign of worse times to come. It has been reported that 24,151 tech workers have lost their jobs, with companies such as Amazon, Salesforce, and Coinbase leading the way.
Apart from MPL, there are entities such as Probo Technologies and Gameskraft that are currently engaged in legal battles against the government on the imposition of 28% GST. As per the GST council, there is a plan to reassess the decision made following the initial six-month implementation period.
Consequently, gaming companies are required to hold off on laying off employees until the decision undergoes review after the initial six months. The Revenue Secretary Sanjay Malhotra made it clear that any notifications or amendments are prospective in nature.
Read More: Review of 28% GST on Online Gaming after 6 months implementation: GST Council
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