The recent changes to the Goods and Services Tax (GST) for online gaming platforms have sparked a significant discussion within the industry. Paavan Nanda, co-founder and CEO of WinZo, emphasized that the GST should apply to revenues generated by the platforms rather than the deposits made by users into their wallets. As the company experiences a slowdown in growth for FY24, these changes will likely have a more pronounced effect in the upcoming fiscal year.
Impact of the GST Rate Increase
Effective from October 2023, the newly implemented 28% GST is expected to impact WinZo more heavily in FY25. The company, which achieved a remarkable 70% year-on-year increase in net revenue—totaling ₹1,055 crore in FY24, up from ₹619 crore—now faces challenges ahead. The adjustment in taxation is predicted to hinder the growth momentum established in previous years.
- FY24 Net Revenue: ₹1,055 crore (up 70% from FY23)
- Adjusted Profit After Tax: ₹315 crore (151% increase from ₹125 crore)
- Earnings Before Interest, Taxation, Depreciation, and Amortization (EBITDA): ₹397.2 crore
Concerns Over Revenue Taxation
Nanda expressed no objections to the 28% GST itself; instead, he highlighted the current taxation on customer deposits as problematic. “The revenue we generate comes from a percentage of the winnings players earn on our platform, not from their deposits,” he stated, indicating the need for a more equitable tax structure. He warned that with the full effect of the GST looming, nearly 45% of WinZo’s revenue could be allocated to taxes, complicating future financial forecasts.
Financial Insights and Future Plans
While WinZo has not disclosed its gross revenue figures, the company’s transition to the Ind-AS accounting framework will necessitate recognizing a ₹999 crore liability. The bulk of WinZo’s earnings derives from platform commissions, with a minor fraction sourced from in-app purchases, although the exact breakdown remains undisclosed.
In a strategic move to bolster its offerings, WinZo is channeling $50 million into developing and acquiring games. This initiative has already seen 7-8 new games incorporated into the platform, enhancing the user experience and broadening the company’s portfolio.
Expanding Horizons
Global expansion is another key focus for WinZo, according to Nanda, although specific details about new markets or timelines remain under wraps. Presently, the platform operates in India and Brazil, with aspirations to reach a wider audience.
As the gaming landscape continues to evolve, WinZo’s proactive steps in game development and strategic financial management will be crucial in navigating the challenges posed by regulatory changes and market dynamics.
