CBIC Seeks Info about Indian Users from Foreign Online Gaming Companies

The Central Board of Indirect Taxes and Customs (CBIC) is said to have contacted a half-dozen online gaming companies based in Malta, the United Kingdom, and Gibraltar to gather data on the number of Indian users and the amounts they have spent.

Tax officials sent letters to the gaming companies about six weeks ago, citing sources.

“They (tax officials) are attempting to determine the volume of money going to offshore gaming companies. We don’t believe that these foreign companies maintain distinct records of users from different nations,” a source was quoted as saying in the report.

The law mandates that service importers pay GST on a reverse charge basis. Reverse charge refers to a situation in which the recipient of the supply of goods or services bears the burden of paying GST rather than the supplier of those goods or services.

The service provider who is based outside of India is accountable for paying GST for the import of online information and database access or retrieval services (OIDAR) by unregistered, non-taxable recipients.

Due to the low value, high volume nature of transactions on offshore gaming platforms, it becomes very challenging to track and identify residents sending money abroad, according to the report.

“The majority use foreign credit cards. The money that was previously sent abroad under the liberalised remittance scheme (LRS) and has been sitting in a foreign bank account may not be being used by many people. Such fund transfers would never be discovered, according to a tax advisor to some of the companies.

Several online gaming companies have responded to the authorities’ questions, according to a government official who was quoted in the report. Additionally, he claimed that it was simpler for foreign gaming platforms to evade taxes due to the lack of clarity surrounding the GST rate for online gaming.

It should be noted that the CBIC is looking into gaming companies for what the government recently disclosed to the Parliament as alleged GST evasion of nearly INR 23,000 Cr.

As far as GST evasion is concerned, CBIC formations have opened investigations against some gaming companies (including online gaming companies) with locations both in India and abroad. In a written reply to a question in the Lok Sabha, Minister of State (MoS) for Finance Pankaj Chaudhary stated that the estimated amount of GST evasion by these companies amounts to INR 22,936 Cr.

The Center is presently examining how to tax online gaming sites. According to reports, a Group of Ministers (GoM) will likely recommend imposing a uniform 28% GST on online gaming, and the government is also considering developing a national framework for online gaming platforms.

A KPMG report states that by mid-2020, there will be about 400 million online gamers in India, up from about 250 million in 2018. This will make India the second-largest online gaming market after China.