DGGI to send GST Notice to 20-30 Online Gaming Companies soon

The Directorate General of GST Intelligence (DGGI) is going to issue tax notices to 20-30 online gaming companies very soon.

According to the source, until now, approximately Rs 1 trillion notices have been issued to about 20 online gaming firms but the DGGI will be issuing more notices to 20-30 more companies too soon.

However, the group of firms that will now receive notices comprises many smaller firms with relatively lower tax liabilities, pointing out that aggregate tax demand in the earlier series of notices could be modest than those that have been already issued. Some of the online gaming companies are small-scale companies, we want to close this down faster, the source added.

In progressive months, GST notices were issued to various online gaming firms such as GamesKraft, Deltatech Gaming, Dream Sports (parent of Dream 11), Games24x7, and Head Digital Works.

Further industry estimates added that the tax demands add up to Rs 1.1 trillion about five times the combined revenue of these companies, between Financial Year 2019 and Financial Year 2022.

The government filed a special leave petition in the Supreme Court against a Karnataka High Court decision that repealed a tax notice on Gameskraft, stating that the card game Rummy played on its platform was a ‘game of skill’.

There is no uncertainty about withdrawing these notices, as these are issued according to the law. Unless the GST Council decides to take a decision on changing the law, notices will not be withdrawn, according to the official.

In the GST Council’s meetings in July and August, had decided to impose on full face value of bets placed on online gaming platforms and horse racing and casinos.

To implement the same, the amendments to the Central GST Act and Integrated GST Act were subsequently passed by Parliament and came into force from October 1. This notice also distributes the differentiation between games of skill and chance, by bringing the whole online gaming industry under the scope of ‘betting and gambling’ definition for tax purposes.

The massive tax burden is however a consequence of a dissimilarity in interpretation of the relevant laws. Online gaming companies contend that till October 1 when the new provision came into effect, 18% GST was payable on the platform fee, or the gross gaming revenue. However, the government conserves that the 28 % GST rate on gaming was always on the full face value of bets.

At the beginning of October, Sanjay Malhotra (Revenue Secretary) said that some members of the 52nd GST Council meeting had mentioned the issue of retrospective taxation. These dues already occurred as they were already attracting 28% GST by way of betting or gambling.

In view of the strict stance adopted by DGGI in the Supreme Court and various High Courts facing GST liability for the pre-October 2023 period for online gaming companies, it seems practically impossible that the DGGI will stop pursuing such retrospective tax demands on its own.

If the purpose is indeed to give relief to this gaming sector from such retrospective GST demands, between 1 July 2017 to 30 September 2023 from GST, a special order may be issued under Section 11(2) of the CGST Act exempting supplies for online gaming companies. When this order is issued Show Cause Notices (SCNs) to such companies may be arbitrated and dismissed on the basis of such exemption order.