The Directorate General of GST Intelligence (DGGI) is set to issue tax notices to another 20-30 online gaming companies soon, a government source told FE on Wednesday, while confirming that it has so far raised tax demands of over Rs 1.1 trillion via notices served on 20 firms.
“So far notices worth about Rs 1 trillion have been issued to about 20 online gaming firms…but the DGGI will be issuing more notices, and that too very soon, to about 20-30 more companies,” the source said. However, the set of firms which will now receive notices include many smaller firms with relatively lower tax liabilities, the source said, indicating that aggregate tax demand in the fresh batch of notices could be smaller than those that have been already be issued.“Some of them are small companies…we want to wind this up faster,” the source said.
In recent months, online gaming firms such as GamesKraft , Deltatech Gaming, Dream Sports (parent of Dream 11), Games24x7, Head Digital Works have been served GST notices. According to industry estimates, the tax demands add up to Rs 1.1 trillion, almost five times the combined revenue of these companies, between FY19 and FY22.
The Supreme Court is hearing a special leave petition in this regard, filed by the government against a Karnataka Hugh Court decision that quashed a tax notice on Gameskraft, stating that card game Rummy played on its platform was a “game of skill.”
“There is no question of withdrawing these notices, as these are issued in accordance with the law. Unless the GST Council takes a decision on changing the law, notices will not be withdrawn,” the official said.
The GST Council in its meetings in July and August had decided to “clarify” that 28% GST is applicable on full face value of bets placed on online gaming platforms and horse racing and casinos. The amendments to the Central GST Act and Integrated GST Act, to implement the same, were subsequently passed by Parliament, and came into effect from October 1. The notification also dispensed with the differentiation between games of skill and chance, by bringing the whole industry under the ambit of “betting and gambling” definition for tax purpose.
The huge tax burden is however a result of a difference in interpretation of the relevant laws. Online gaming firms contend that till the new provision came into force on October 1, GST was payable at 18% on the platform fee, or the gross gaming revenue. The government however, maintains that the GST rate on gaming was always 28% on the full face value of bets.
Earlier in October, Revenue Secretary Sanjay Malhotra had said, “Certain members (in the 52nd GST Council meeting) had raised the issue of retrospective taxation. It was informed to them that this is not retrospective, and this was the law earlier.” “These liabilities already existed…they were already attracting (28% GST) by way of betting or gambling,” he had said.
Sudipta Bhattacharjee, Partner at Khaitan & Co, said, “given the hard stance taken by DGGI in the Supreme Court and various High Courts vis a vis GST liability for the pre-October 2023 period for online gaming companies, it seems practically unlikely that DGGI will stop pursuing such retrospective tax demands on their own.”
“However, if the intention is indeed to provide relief to this sector from such retrospective GST demands, a special order may be issued under Section 11(2) of the CGST Act exempting supplies by for online gaming companies between 1 July 2017 to 30 September 2023 from GST. Once such an order is issued, show cause notices to such companies may be adjudicated and dropped on the basis of such exemption order,” he said.