Effect on Online Gaming Industry Employees Amid New GST
Undoubtedly a significant step, the Central Government's decision to apply a 28% Goods and Services Tax (GST) to online gaming, betting, and gambling. During the 50th GST Council meeting on July 11, 2023, this decision was formally announced, and it was further explained in the ensuing 51st GST Council meeting on August 2, 2023. What effects would the increase in the GST rate have on gaming companies and the people who work for them?
There is little doubt that the job situation in the gaming industry would suffer as a result of the government's decision. Companies will have to devote a bigger portion of their profits to taxes as a result of the tax rate's introduction, adding to their burden. Therefore, this can result in 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.
It makes sense that businesses might feel forced to fire workers if their financial situation deteriorates. Significant layoffs are frequently preferred when businesses are short on working capital funds. The justification for cost reduction through employee terminations is that a business cannot sustain the employment of its workers for long periods of time if it is unable to pay salaries. This is now a typical tactic used by businesses to easily manage cost reduction or deal with financial risks.
Effects of Layoffs on the Economy
In addition to having an effect on the affected employees, workforce reductions may also have an effect on the whole economy. Significant employment losses may result in a drop in consumer spending, which may subsequently have an effect on businesses that rely on consumer spending. Layoffs may also result in a decrease in tax revenues because fewer people will be working and paying taxes. The government's revenue from direct taxes will decrease.
Layoffs at 91 Businesses
Technology workers around the world have had a challenging start to 2023, with 91 organizations letting go of more than 24,000 IT workers in the first 15 days of the month. This portends that things will get worse. According to reports, 24,151 tech workers have lost their employment, with Coinbase, Amazon, and Salesforce among the top employers.
Along with MPL, other companies including Probo Technologies and Gameskraft are presently suing the government over the implementation of a 28% GST. The decision made will be reviewed after the initial six-month implementation period, according to the GST Council. So, until the decision is reviewed after the first six months, gambling enterprises are prohibited from terminating personnel. Any notices or modifications, according to Revenue Secretary Sanjay Malhotra, are prospective in nature.