Online Gaming Companies Face Massive Tax Demands Over Alleged GST Evasion

Online Gaming Companies Face Massive Tax Demands Over Alleged GST Evasion

Unpaid Goods and Services Tax Allegations

Several online gaming companies are facing hefty tax demands from the Directorate General of Goods and Services Tax Intelligence (DGGI) over alleged evasion of Goods and Services Tax (GST). Pre-show-cause notices have been served to a minimum of six companies, including the fantasy gaming company Dream 11, which has received tax demands amounting to Rs 18,000 crore. The allegations stem from the supposed misclassification of the activity of online fantasy sport gaming, with the DGGI claiming that required documents were not submitted despite multiple intimations.

Enquiry and Legal Backlash

The DGGI initiated their initial enquiry into Dream 11 in September 2018, followed by an extensive inspection in September 2023. Disputing the notices, Dream 11 filed a writ petition before the Bombay High Court, arguing against the 28 percent GST charge on the face value of the bets collected by it from July 2017 to March 2022. The company has contested the proposal to tax the entire Contest Entry Amount, terming it ‘arbitrary and unreasonable.’

Further Notices Expected

More such notices are on the horizon, with several online gaming companies, including the digital skill gaming company Games 24×7, having already received intimation notices. The DGGI has asked these companies to clarify and explain their stand before final notices are prepared and sent out. Industry insiders suggest that the tax demands across the industry could exceed Rs 1 lakh crore.

The Supreme Court’s Role

The Supreme Court recently stayed a Karnataka High Court order that had quashed a show-cause notice issued by the DGGI to Gameskraft, asking the company to pay an additional GST of Rs 21,000 crore. This stay has enabled GST authorities to send out similar notices to other companies.

Implications for the Online Gaming Industry

This wave of tax demands comes at a time when the online gaming industry is flourishing, with the increasing popularity of fantasy sports and skill-based games. These legal challenges could significantly impact the operations and financial viability of these companies. With the Supreme Court’s decision to stay the Karnataka High Court’s order, there may be a precedent set for the GST authorities to levy similar tax demands on other companies in the online gaming industry.

Conclusion

The ongoing developments signal a significant shift in how online gaming activities are classified and taxed. They also highlight the need for more clear and consistent regulations for the burgeoning online gaming industry. As these legal battles unfold, they will undoubtedly have far-reaching implications for the industry and its stakeholders.