Online Gaming Companies Review Legal Options, Await GST Council Meeting for Clarity

Experts say there is a need for a clarificatory circular to address past issues that would give the industry a breather

INDIA (September 28, 2023) — Faced with onerous notices for goods and services tax (GST), online gaming companies are now on a wait and watch mode and are looking at legal options such as filing writ petitions in courts. While the Directorate General of GST Intelligence has till now sent notices to only three such companies, others are also gearing up to face similar action.

“The industry is in a big flux. Almost all companies are looking at legal options in case they are sent a GST notice. Even appeals in these cases require pre- fixed deposit of taxes running into 100s of crores of rupees. Where will companies find this kind of money on their books,” ‘Business Today‘ reported an industry source said.

Online gaming companies are also waiting for the meeting of the Goods and Services Tax Council on October 7 to see if there will be any clarity for the basis of tax notices and future action by tax officials.

“As of now, there is hope that the GST Council will take a view on how to implement the 28 per cent GST and what kind of enforcement has to be done,” said another source, adding that the tax notices are on a retrospective basis.

While a formal agenda for the GST Council meeting is awaited, it is likely that it will review the process of implementing the 28 per cent levy on online gaming, horse racing and casinos.

The DGGI, which has been investigating a number of online gaming companies, sent tax out fresh tax notices. Dream11 has received a tax notice of Rs 25,000 crore and has now approached the Bombay High Court. It is expected that more GST demand notices will be sent out soon.

Tax experts noted that while recent GST amendments have clarified the tax position for online gaming going forward, but the past position continues to be a matter of litigation.

“Given the industry’s precarious situation, it is imperative for the government to issue a clarification to at least address past issues which would give some breather to the industry. Also, the significant pre-deposit amount required for filing an appeal when the tax department issues an order only adds to the industry’s financial woes,” said Saurabh Agarwal, Tax Partner, EY, adding that the past tax burden imposed on online gaming companies is very high, and in some cases exceeds their turnover.

With the limitation period for 2017-18 ending on September 30, it is possible that the DGGI is initiating investigations and sending notices in many cases now.  “Such action is arbitrary. If the government had any intention of taxing these transactions with a retrospective effect, the notification or the press release post 51st GST council meet would have clearly stated the same, which is not the case here. So this issue is a long drawn battle between the gaming industry and revenue authorities,” said Smita Singh, Partner- Indirect Tax, Custom & Trade at S&A Law Offices.

However, post the GST notice to Gameskraft, many companies had done their due diligence to ensure they comply with tax norms.

Posted by: Priya Raghuvanshi, Sep 27, 2023.

SOURCE: Business Today.