The imposition of a 28% Goods and Services Tax (GST) on online gaming platforms by the Indian government has sent shockwaves through the industry, with popular gaming app Mobile Premier League (MPL) being one of the hardest hit. MPL has announced its plans to lay off around 350 employees, constituting about 50% of its workforce in India, citing the increased tax burden and subsequent profit reduction as reasons for the unfortunate decision.
Layoffs Across Affected Areas
The workforce reduction encompasses various sectors within the company, with the product team being the most adversely affected, experiencing over 60 job cuts. This strategic move stems from the need to navigate the financial challenges posed by the newly implemented GST on online gaming.
The Rationale Behind Layoffs
MPL’s CEO, Sai Srinivas, expressed concerns about the considerable escalation in the company’s tax obligations due to the 28% GST on customer payments. Srinivas highlighted that this tax would result in a staggering 350%-400% increase in their tax burden. While businesses can often anticipate and prepare for gradual tax adjustments, the sudden magnitude of this increase forced MPL to make difficult choices to ensure its financial stability.
In an internal email to employees, MPL’s co-founders, Sai Srinivas and Shubh Malhotra, emphasized that their operational expenses primarily involve personnel, server, and office infrastructure. In light of the tax burden, the company has initiated measures to review and revise these costs.
GST Council’s Decision and Industry’s Response
The GST Council’s resolution to impose a 28% tax on funds collected by online gaming companies from their customers sparked a wave of concern within the industry. In a collective effort, approximately 130 founders, CEOs, and industry associations representing real-money gaming startups, including MPL, penned an open letter to the government, urging a reconsideration of the decision. MPL’s investors, Peak XV and RTP Global, also directly reached out to Prime Minister Narendra Modi with similar concerns.
Despite these efforts, the GST Council remained steadfast in its decision, maintaining the 28% GST on online gaming funds. However, the Council did provide some respite by recommending that GST be applied to deposits instead of every individual bet placed, aiming to mitigate the burden of repeat taxation.
MPL’s Determination and Support for Employees
Amid these challenges, MPL’s co-founders emphasized the company’s resilient performance, recording its best business month in June, which was even surpassed in July. Despite the layoffs, MPL remains committed to supporting the affected employees during this transition period. The co-founders acknowledged the personal impact these changes would have on the employees and assured them of the company’s dedication to offering assistance and facilitating their search for new opportunities.
The imposition of a 28% GST on online gaming funds has stirred up significant turmoil within the industry, leading to unfortunate consequences such as the employee layoffs at Mobile Premier League. As the gaming sector grapples with the implications of this taxation, it remains to be seen how companies will adapt and innovate to ensure their survival and continued growth.
