GST body to take action against top online gaming firms

On the lines of a notice issued to unicorn startup Gamescraft Technology over the weekend, the online gaming sector in India should file a flurry of tax claims from the Goods and Services Tax (GST) authorities.

On 25 September, the Directorate General of GST Intelligence (DGGI) issued a show-cause notice asking Gamescraft to pay. 21,000 crore after another notice on September 8, when it said that taxes paid by startups include misclassification as a service instead of actionable claims, which are 28% taxable.

According to a person aware of the developments, hundreds of other such notices are in the works and soon online gaming companies, casinos and other firms may be classified as betting and gambling platforms by the department.

The person said that DGGI has been working on these notices for over a year, and that the Gamecraft notice was only given the first time.

Two lawyers for online gaming firms in India also said that their clients had received “exploratory communications” from GST authorities. One of them said that the customer was able to successfully prove that it was not a mistake. A finance ministry spokesperson did not comment on the story.

“Rummy has been declared a skill sport like horse racing, bridge and fantasy sports. Therefore, the notice is a departure from the well-established law of the country. With the unicorn position in online skill gaming, a Gamescraft spokesperson said in a statement on Sunday. As a responsible startup, we have discharged our GST and Income Tax liabilities as per standard industry practice, which is more than a decade old now.

“We are confident that we will be able to respond to this notice to the full satisfaction of the authorities as they sought to introduce tax of 28% applicable on games of chance and lottery instead of 18% applicable on online platforms of skill games. . . ” said the spokesperson. The company on Monday also filed a writ petition before the Karnataka High Court challenging the notice, which will be heard on September 27.

The notice was issued amid an ongoing dispute between online gaming firms and GST authorities over the component over whether GST can be levied. Rule 31(a) of the CGST Act, which applies to betting, horse racing etc., allows GST to be collected on Gross Gaming Value (GGV) instead of Gross Gaming Revenue (GGR).

In the online gaming industry, players combine their money to create a prize pool, which is then used to pay out winnings. The difference between these combined deposits and winnings makes up GGR. GGV, on the other hand, is the combined prize pool.

While the sector currently pays 18% tax on GGR, industry stakeholders said they have accepted that taxes will have to be paid at 28% in line with taxes levied on other non-essential services. However, they are concerned that implementing 28% GST on GGV will more than double the taxes for the industry and force some firms to close. Ashish Philip, Partner, Law Firm said, “The question of classifying the nature of sport as ‘game of skill’ and ‘game of chance’ needs to be determined on the basis of principles and tests laid down by the Hon’ble Supreme Court. ” Lakshmikumaran and Sreedharan said.