Potential relief for online gaming industry as government mulls over GST demands

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According to sources, the Union government is considering softening its stance on the goods and services tax (GST) demand notices issued to online gaming companies. The move comes as the government acknowledges the significant challenges faced by gaming firms if they are required to fulfil GST demands raised for the period between July 2017 and March 2023.

CNBC reported that sources suggest that the government is now acknowledging that it’s impractical for these companies to meet unrealistic tax demands. It is reported that the government has sought legal opinion on potential resolutions to the ongoing dispute with online gaming firms.

In 2022-23 and the first seven months of 2023-24, online gaming companies received a total of 71 show-cause notices related to GST evasion, amounting to Rs. 1.12 lakh crore, as disclosed in the Rajya Sabha last year. Minister of State for Finance Pankaj Chaudhary clarified in response to a written question in December 2023 that as these notices are pending adjudication, the final GST demand has not yet been determined under the provisions of the CGST Act, 2017.

The government’s decision to impose a 28% tax on online gaming companies, based on the total funds deposited for playing online games, in August 2023 has triggered disputes within the industry. Some firms, such as Mobile Premier League, have resorted to layoffs because of this. The difference arises from the interpretation of the tax rate, with companies arguing that the 28% tax should apply only from October 1, 2023. However, the government maintains that the revision on October 1 merely clarified an existing law and did not introduce a retrospective tax.

Meanwhile, the matter concerning GST demands on online companies is under consideration in the Supreme Court. Additionally, the government has challenged a Karnataka High Court order that nullified a Rs. 21,000 crore GST demand on Gameskraft, taking the dispute to the apex court for resolution.