The landscape of online skill-based gaming in India is undergoing a significant tax assessment, as the Central Board of Indirect Taxes and Customs (CBIC) unveils a potential tax demand of Rs. 45,000 crore from these platforms.
Skill-Based Online Games Could Incur Rs 45,000 Crore Tax Liability
In an unexpected turn, the CBIC has identified a gap in tax payments by these companies since 2017. These platforms, which were being taxed at 18% on their gross gaming revenue due to their categorization as skill-based games, should have been taxed at the prescribed 28%. As a result, they have been paying 10% less tax than required.
A spokesperson from CBIC highlighted, “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 and Controversy
On July 11, the GST Council made a decisive move by subjecting every online money gaming company to a uniform 28% GST rate, disregarding the classification of games as skill-based or chance-based. This shift triggered considerable controversy, prompting multiple companies to appeal to the government for a reconsideration of the decision.
Prominent investors, including Tiger Global, joined the appeal, urging the Modi government to rethink the tax rate. Industry leaders, such as Ashneer Grover, cautioned against deterring foreign investors.
Elimination of Categorization Distinction
A focal point of the discourse was the distinction between categorizing online gaming as games of chance or skill, as the former attracted the higher 28% GST rate. Certain firms contended that they offered skill-based games, justifying the lower 18% tax rate.
However, the GST Council, on July 11, announced that both skill-based and chance-based games would be subject to a 28% tax on the total bet value.
Significant Tax Deficit Uncovered
The revelation of the gaming industry’s underpayment, spanning Rs. 45,000 crore since the introduction of GST, underscores the scale of the issue. Despite real money gaming companies holding a commanding 77% share in the online gaming sector, they have remitted less than ₹5,000 crore in GST since 2017.
The actual tax liability is estimated to exceed Rs. 50,000 crore. This includes offshore gaming companies evading over Rs. 12,000 crore in taxes and the Rs. 21,000 crore demand directed at Gameskraft.
Government Action and Implications
The Center has taken legal action by filing a special leave petition in the Supreme Court against the Karnataka High Court’s decision that invalidated the tax demand notice against Gameskraft.
In light of these developments, the Directorate General of GST Intelligence (DGGI) is poised to issue notices to the concerned entities. The pertinent question now revolves around whether these companies will be retroactively charged 28% tax from July 1, 2017, or from July 11, 2023. The outcome holds considerable implications for the online skill-based gaming landscape in India.
