The Central Board of Indirect Taxes and Customs (CBIC) has determined that online skill-based gaming platforms in India face a potential tax demand of Rs. 45,000 crore.
10% less paid
It has found that these companies have underpaid taxes since 2017, having paid only 18% tax on gross gaming revenue, considering them as games of skill instead of the prescribed 28%.
A CBIC official stated, “The recent CGST amendment has clarified the GST obligations of online gaming companies. Every such company will be subject to a 28% GST and must settle the outstanding tax.”
Background
On July 11 the GST Council decided that every online money gaming company will be subject to a 28% GST, removing any distinction between skill-based or chance-based games.
This became hugely controversial, with several companies writing to the government to reconsider the decision.
Top investors, including Tiger Global, urged the Modi government to reconsider the tax rate, while industry leaders like Ashneer Grover warned of scaring away foreign investors.
No more distinction in type of gaming
An important point of the debate was the difference between classifying online gaming as either games of chance or skill, since the former attracts the much higher 28% GST.
Some firms contended that they offered skill-based games which warrant an 18% tax rate instead of 28%.
However, on July 11, the GST Council clarified that both categories would be taxed at 28% of the total bet value.
Huge deficit in taxes paid
The gaming industry’s underpayment amounts to Rs. 45,000 crore since GST implementation.
The online gaming sector, where real money gaming companies hold a dominant 77% share, has remitted less than ₹5,000 crore in GST since 2017.
The actual tax liability is estimated to be over Rs. 50,000 crore, including liability of offshore gaming companies that have evaded more than Rs. 12,000 crore in taxes and the Rs. 21,000 crore demand issued to Gameskraft.
Government actions
The Centre recently filed a special leave petition in the Supreme Court against the Karnataka High Court order that quashed the tax demand notice against Gameskraft.
The Directorate General of GST Intelligence (DGGI) is now preparing to serve notices to the offending entities.
The question now remains whether the companies will be charged 28% tax from July 1, 2017 or from July 11, 2023.
