This week, India’s only listed casino operator received GST intimation notices for an amount aggregating to INR 16,000 crores. The amount is based on total value of bets by players and relates to Delta Corp and it’s subsidiaries. This tax amount is much higher than last ten year aggregate turnover of Delta Corp.
While Delta Corp said it is exploring legal options to respond to notice, one would wonder even if the notice withstands legal scrutiny, how will the amounts be paid? The tax amount is more than three times the entire market of Delta Corp.
The case of GamesKraft is also a similar scenario. The current tax demand for GamesKraft is INR 21,000 crores. Similar notices are expected to be issued for all major gaming entities and casino operators. Total expected amounts of all showcause notices to gaming industry will be above INR 2.5 lakh crores while the entire industry market cap is below this amount.
These companies would have no option but shut the business if they are required to pay the tax amounts ultimately. Casino industry is a significant contributor to Goan economy and Goa government will not be comfortable in seeing casino sector fail.
This scenario is somewhat similar to AGR dues issue faced by telecoms. Ultimately, the union government had to become a 33% shareholder of Vodafone Jio in lieu of AGR dues. In telecom scenario the market cap of Vodafone Idea is much higher than the tax dues and equity conversion was practicable.
In the current gaming sector scenario, the tax amount is much higher than market value of these entities. Even if government intends to convert the tax dues into equity, the entities will have to become 100% owned by the government but still the tax recovery won’t be 50% of the amounts due. Imagine, government operating casinos!!
This also places the directors of gaming entities which are private limited companies in a precarious situation where the department may claim personal liability under Section 89 of the CGST Act.
With the Supreme Court hearing the GamesKraft appeal on regular basis, the legal ambiguity is expected to be settled soon. The next date of hearing on the matter is 10 October.
Assuming government obtains a favorable decision at the Supreme Court, the road to recovery will be difficult and will be an interesting case study for years to come.