How the "Google tax" will turn out for the Russian gaming market: expert opinions

We talked with gaming industry experts about how the adoption of the law on the introduction of a “Google tax” on the Russian gaming software market could affect.

Recall that yesterday, on June 15, the State Duma of the Russian Federation announced the adoption of a law according to which 18% will be charged from the sale of any digital content and digital software by any foreign company to Russian users.

Sergey Orlovsky, CEO of NivalIt should be understood that almost most of the developers are published through Western platforms, such as the App Store, Google Play or Steam.

Just because there are no others.

The Russian market has already halved in dollars when the ruble fell. If we add VAT to this, it will be almost three times. Obviously, most developers will lose interest in it even more. Despite the fact that many have learned to work in Western markets. Therefore, there will be fewer games for the Russian market, prices will rise, everything is as usual.

Orlovsky, in an interview with us, also added that he was no longer going to make games with an eye on the Russian audience.

Sergey Galenkin, Head of Publishing for Eastern Europe at Epic GamesForeign companies pay VAT on electronic sales in the EU, so there will be no special surprises for them here.

The law has been known about since December, our company was ready for it.

For Russian developers, there is a problem of double VAT, which, unfortunately, was not taken into account in the law. The fact is that most Russian developers sell their games through platforms (Steam, App Store, Google Play), and not directly. This leads to the fact that VAT from the same purchase is paid twice – first it is paid by the site in Russia, and then by the developer company when it receives its money to a Russian legal entity.

According to this law, Russian developers are not in a privileged position, but, on the contrary, at a disadvantage.

Of course, if a developer company sells its games (programs, services) directly to Russian users, then it will only benefit from this. But I except Mail.ru I can’t think of any more examples of Russian gaming companies working directly.

I don’t expect a global increase in prices for games in Russia just because of VAT. Such an increase may occur because the Russian ruble has fallen noticeably in the last two years, while many game developers on the same Steam kept their prices at the same level. VAT can become, so to speak, a formal reason.

We also asked Sergey to name the approximate annual turnover of the Russian PC games market (excluding MMO and social games), starting from the turnover of the Russian Steam, so that it would be clear how much the Russian Federation can expect from the digital gaming retail by introducing VAT.

According to him, “the market for paid PC games in Russia is quite small. Even taking into account Origin and GOG, it is somewhere in the region of $140 million, of which Steam accounts for the majority ($110-120 million). After all, Russia is a country of free-to-play games.”

Maxim Kochurin, project Manager of Indigo KidsFirst of all, this will affect the developers:

 15.25% VAT will be included in the price of internal purchases, which, accordingly, will reduce the income of developers by the same amount. Unless, of course, they increase the price of their IAPs, which will also affect their income, because they will buy less.

The law itself is very vague, and, in my opinion, it is primarily not about money, but about getting everything possible from any foreign Internet company within the framework of the legislative field of the Russian Federation. Everything falls under the law: social networks (hello, Facebook!), the App Store, Google Play, and even advertising traffic providers.

The law says in black and white that if you don’t want to pay tax, then create a “daughter” and work as a resident of the Russian Federation. According to the laws of the Russian Federation and its procedures: “except for the provision of such services through a separate subdivision of a foreign organization located on the territory of the Russian Federation.”

Well, if you want to be independent, then pay a percentage of 15.25%. But there are also problems here: it is not known how exactly? The law mentions an incomprehensible “personal account” for foreign companies (does it even exist already?). And time for reflection until January 1, 2017.

With the current competition, developers will lose either 15.25% of their income, or part of paying users due to an increase in the cost of internal purchases (which is also a loss of income).

In my opinion, this law is more “against” the industry than “for” it. In my opinion, this may particularly affect Google services.

Output: wait and see how the platforms (iOS, Android) arrive. Developers in this situation are passive observers.

Valentin Merzlikin, evangelist of Creative Mobile publishingThe appearance of the tax will affect developers and consumers alike.

If for the developer this will mean a decrease in his margin (this will lead along the chain to a decrease in the cost of attracting traffic, and to a drop in advertising revenue), then for the consumer it will mean an increase in prices (developers will try to shift their increased costs to him and raise the final prices in stores).

From an accounting point of view, the fact that you are selling content on the Russian market will not mean that you need to pay VAT on sales separately, the main burden will fall on sellers – mobile app stores, large digital platforms. All additional taxes will be paid for you by Google and Apple.

How the positions of foreign and Russian developers will differ will depend on how VAT will be charged under the new law. If foreign companies paying VAT will be able to pay Russian developers their share including VAT (which I am not very sure about), then some Russian developers will be able to receive larger royalties than foreign developers of games and in-game content.

By the way, Dmitry Sannikov, one of the developers of projects such as The Tiny Bang Story and The Braveland trilogy, shared on his Twitter how the introduced VAT will affect his income from Steam.

In general, I calculated. Previously, from each Braveland sold in Russia (149 rubles on Steam) we received 85.29 rubles in our hands, and now we will be 69.94.

— Dmitry Sannikov (@dasannikov) June 15, 2016