52nd GST Council meeting: Tax demand notices to online gaming firms not on retrospective basis, govt clarifies

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The 52nd GST Council meeting concluded today with no major discussion or decision on online gaming, casinos and horse racing being taken.

Speaking on the matter, Revenue Secretary Sanjay Malhotra said that there was very little discussion on the matter. However, a major point that he clarified is that the tax notices are not retrospective in nature. According to him the law was already in existence and the liabilities were due for the online gaming companies, as a result.

The concerns raised by Delhi FM Atishi Marlena regarding the 28% GST rate and tax notices having adverse effect on the “sunrise sector” were also heard, but an in-depth discussion or a reversal of any previous decision was not made.

Malhotra also stated that so far 18 states have amended their GST laws to incorporate the 28% tax rate on online gaming, casinos and horse racing while 13 other states are yet to do so.

After the recent implementation of the new GST regime, industry body All India Gaming Federation (AIGF) wrote to Malhotra asking for clarification on how tax will be levied in states where the new GST law has not come into effect.

The story so far

While the decision to levy 28% GST on full face value was arrived at with near unanimity in the 50th GST Council meeting on July 11, it was a shock to the online gaming industry as they were hoping the tax would be imposed on gross gaming revenue (GGR) which is the international standard.

In its 51st meeting soon after on August 2, the Council clarified that the tax will be levied on initial entry deposits and not on every contest entry amount, much to the relief of the industry. Despite that the industry still urges for a reconsideration, claiming that the increased GST rate will lead to layoffs, decreased revenue, closures, and gamers moving to illegal betting platforms.

On top of the 28% GST rate, the online gaming companies have also been receiving tax evasion show cause notices from the Directorate General of GST Intelligence (DGGI). The amounts demanded in these notices are much higher than the total revenue or valuation of the gaming companies.

A tax notice was first handed to Gameskraft for Rs 21,000 crore back in 2022. At the time, it was the biggest-ever indirect tax notice ever served to a company before it was overtaken by Rs 28,000 crore one to Dream11 earlier this month.

Due to this, the online gaming companies are now facing a threat of bankruptcy in case the Supreme Court rules in favour of the GST authorities.