He said the government was ready to implement the 28% GST regime for online gaming, horse racing and casinos following the GST Council’s decision of last month as soon as all states amend their respective laws. The Council will take stock of the tax regime in six months, as decided at its last meeting on August 2, he said.
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“The department is taking a uniform stand in the interpretation of law and, accordingly, showcause notices are being issued,” Agarwal told reporters on the sidelines of a Ficci event, adding that all notices were based on internal data analysis. His comments came in the backdrop of many large online gaming companies — including Delta Corp and Dream11 — receiving tax demand notices running into thousands of crores.
On August 16, ET first reported that the Directorate General of GST Intelligence (DGGI) would send notices to real money gaming (RMG) companies that had hitherto paid tax at a rate of 18% on gross gaming revenue, positioning themselves as platforms of ‘games of skill.’
Total tax liability of these gaming companies is seen at about Rs 55,000 crore. Agarwal declined to give any number on the tax liability, saying that in many cases, state tax authorities had issued notices.
The tax amount claimed includes 100% penalty and interest since August 2017.
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The tax department treated online RMG on a par with gambling — liable for levy at 28% on the full face value — but the gaming industry has been paying 18% on gross gaming revenue.Following a setback in the Gameskraft case, where the Karnataka High Court quashed the Rs 21,000-crore tax demand, the GST Council clarified that online real money gaming would face 28% GST on full face value without distinguishing between games of chance or skill. After the Centre moved the Supreme Court, it
stayed the lower court’s order and is expected to next hear the case in the first fortnight of October. Subsequently, the tax department sent notices seeking retrospective taxes. “The legal intent and position has been that these activities purely involve betting in gambling and, therefore, are chargeable to tax at 28% on the full value,” former CBIC chairman Vivek Johri had told ET in an interview on July 13.
Tax calculation
Explaining the calculation, another senior official said that suppose a company was collecting Rs 640 crore as contest entry amount, the gross gaming revenue would work out to just Rs 83 crore, on which the companies were paying 18% GST, which roughly came to Rs 15 crore. Going by CBIC’s calculation, it should be Rs 179 crore, at 28% of Rs 640 crore.
The official said that in 2022-23, online gaming companies paid Rs 1,700 crore GST but the department calculations indicate about Rs 14,200 crore liability. According to a Deloitte report, there are about 1,162 gaming startups in India and 275 game development companies. About 5,468 Indian game publishers are present on the Google Play Store, offering 19,518 games across categories.
Some of the top gaming intermediaries in India (unicorns or publicly listed) include Nazara Technologies, Games24x7, Dream11 and Mobile Premier League.
Tax compliance
To enhance compliance, the department has taken a soft approach of nudging taxpayers for timely and accurate filing of returns and selecting taxpayers for scrutiny and audit by risk analysis, Agarwal said. “The buoyancy of revenue is 1.43 of nominal GDP growth, meaning thereby, (that) revenue collection is not entirely on account of growth in GDP, but a major contribution is (being) made by increased compliance level,” Agarwal said.
“Less than 1% of taxpayers are selected for scrutiny by way of audit based on risk behaviour analysis.” “Many sectors, including iron and steel, are impacted by the menace of fake input tax credit (ITC) to a large extent,” said Agarwal, adding that the solution to deal with fake ITC generation is quite complex, and that the department has received various suggestions regarding it.