Monday, October 2

The real-money gaming sector will be affected by MPL’s decision to lay off 350 employees due to the 28% GST.

The startup based in Bengaluru has gone through its second round of layoffs in about a year, with more than 100 employees laid off. It left the Indonesian market in May 2022.

According to insiders at Moneycontrol, the esports and skill gaming giant MPL is cutting 350 jobs, which accounts for roughly half of its Indian workforce.

The move is in response to the recent proposal by the GST Council to impose a massive 28 percent tax on total deposits, without any differentiation between games of skill and chance. Gaming platforms currently pay an 18 percent GST on platform fees.

MPL co-founders Sai Srinivas and Shubh Malhotra informed their employees in an email that the new regulations will result in a tax increase of 350 percent to 400 percent, with adjustments required to handle the sudden surge.

The co-founders stated in the email that their costs are primarily determined by people, server, and office infrastructure. Although they have already started to look at their server and other office equipment expenses, they will need to reduce some of their personnel expenses.

In their email, the co-founders conveyed that they had to make a difficult decision personally. It felt like finishing our class and now having to repeat it for the rest of the year was no longer possible.

They added: ‘We spent a lot of time considering and re-evaluating this decision; whether we should wait or not, I think because in trying times certainty is delivered to everyone the quicker we can give them certainty.

The startup, based in Bengaluru, has gone through its second round of layoffs in over a year. It had already dismissed more than 100 employees and left the Indonesian market in May 2022.

MPL, founded by Sai Srinivas and Shubh Malhotra in 2018, has more than 60 games available on its Android and iOS apps, including daily fantasy sports, quizzes, board games, puzzles (such as archetypal or random), and casual games. It also boasts moredecât 90 million registered users across Asia, Europe, and North America.

Its entry into the unicorn club was made possible by its initial fundraising of $150 million in September of last year, which resulted in MPL being valued at $2.3 billion.

The investment pool of the company includes Peak XV (previously known as Sequoia India), SIG, RTP Global, Go-Ventures (now Argor Capital), Moore Strategic Ventures, Play VentureS, Base Partners, Telstra Ventured, and Founders Circle Capital.

The tax rate for gaming in real currency is 28%.

An open letter was signed by a group of approximately 130 real-money gaming startup founders, CEOs and industry associations last month, asking for the government to reconsider the GST Council’s July proposal to impose.levy 28 percent on the real–money gambling sector. MPL was among them.

MPL’s investors, Peak XV and RTP Global, wrote to Prime Minister Narendra Modi on July 21 to express their concern that the proposed GST proposal by the GST Council could result in a “potential write-off” of the sector’.

The gaming sector will face the most stringent tax regime under the current GST proposal, as stated by investors.

The GST Council decided to keep its original proposal of imposing a 28 percent surcharge on the full face value on August 2. However, it provided partial exemption by proposing GST on deposits instead of all bets made to prevent repeated taxation.

The 28% increase in GST has put pressure on the real-money gaming industry, according to stakeholders.

The co-founder of Quizy, Sachin Yadav, announced on LinkedIn that the gaming company would be shutting down due to the impact of the new GST regulations.

An anonymous co-founder of a gaming company has stated that they have offered to withdraw the principal money invested in their initial round, despite early investors’ uncertainties regarding the outcome.

Saumya Singh Rathore, co-founder of WinZO games, has identified that the majority of the companies impacted are models that will only experience growth after 2021, while many others are startups and MSMEs that are at risk of facing significant losses and extinction.

According to Rathore, the proposal could jeopardize the sunshine sector and disrupt innovation that led to the establishment of the casual gaming sub-sector in India.

In December, the EBITDA was in a positive range.

MPL co-founders stated in an email that the company was on course to maintain its strong business performance from December until EBITDA was in positive condition. They wrote that they had recorded their best monthly business activity in June and beat it in July.

“We recognize that this is a difficult time for everyone, and we are fully committed to providing you with the best support during this transition. The co-founders acknowledge this and understand how it affects your personal life, as well as any assistance you may require. We will also do our best to assist you in discovering new opportunities.”

Below is a complete email copy:

Dear Leaguers,

The past month has been extremely tough and uncertain for everyone. We are grateful for your courage and determination. Our tax burden increased by as much as 28% due to new regulations, which will now apply to the full deposit value rather than to Gross Gaming Revenue. As a business, one can prepare for 80% or even 40% increase in tax revenue, but adjusting for such draconian increases requires some hard decisions.

Our expenses are primarily driven by people, server, and office infrastructure, making them highly variable. To ensure the business’s survival and stability, we must reduce these expenses and have already started considering revisiting our server and Office infrastructure costs.

Nevertheless, we will still need to reduce our personnel expenses. Unfortunately, approximately 350 of you will be leaving the company soon; it’s been a difficult process that impacts many of our friends and colleagues. In just four years, things have improved considerably.

MPL India was able to maintain strong business performance since December and recorded a positive EBITDA in June, surpassing it in July. This makes the decision even more difficult to reconcile.

We are so proud of the team we have created, and it’s hard to believe that something like this can happen without your resilience. We appreciate your determination and drive, which has helped us achieve such great success.

We guarantee that we will proceed with the utmost respect, compassion, and understanding. To those who are departing, we recognize that these changes will also impact your personal life. The company is available to provide you with support during this time, including guidance on how to navigate new challenges.

After much deliberation, we have determined that it’s best to hold off and now feel confident. We believe that in challenging times, rushing to deliver certainty is the most effective way forward. As we make this decision, please know that we will be there for you every step of the way, offering our unwavering support against any challenges you may encounter.

Our team and we are confident in our ability to handle the challenges ahead and rebuild our business with great success.

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