In a recent interview with ET NOW, technology and gaming lawyer Jay Sayta talked about the ongoing tax notice spree by the Directorate General of GST Intelligence (DGGI) to real money gaming companies as well as the 28% GST rate that will be implemented soon.
Sayta explained that as per the government, there is 28% GST chargeable on every bet made or entry fee paid by users while the online gaming companies say that the amount of tax they are being charged is not based on the revenue that they are making but rather it is based on the amount the players are putting in to compete amongst each other.
The companies only earn a small share out of it as commission which is the actual revenue and on which they pay 18% GST. Since the games were labelled as skill-based, it sets them apart from gambling and so the tax rate applicable is 18%, the companies believe.
Sayta, notably, said that the quantum of tax demanded by the authorities so far is 10 times higher than what these companies are earning. For example, Bengaluru-based gaming company Gameskraft was served the biggest indirect tax notice ever amounting to Rs 21,000 crore last year.
Recently, Delta Corp and its three subsidiaries also received tax notices amounting to Rs 16,822 crore. Moreover, one of the biggest fantasy gaming platforms Dream11 received a similar notice lately. The initial assumption was that the company received a tax notice of Rs 40,000 crore. However, court filings accessed by G2G News revealed that the number is much smaller, standing at Rs 1,221 crore.
The final verdict on this matter will be delivered by the Supreme Court. Sayta believes that the online gaming companies’ arguments have very strong merit. Also, several High Courts have ruled in favour of the industry, classifying their offerings as games of skill. As a result, he is hopeful that the decision might go in favour of the companies.
28% GST from October 1?
While the GST Council has earmarked October 1 as the date of implementation for the new GST policy levying 28% rate on online gaming, casinos and horse racing, Sayta believes that the date will be pushed back as many states have not yet amended their GST laws to mirror the CGST law.
As far as the GST notices are concerned, there is currently no consensus in the industry if the action by DGGI will be challenged. In case the SC favours the GST intelligence, it will virtually end the real money gaming industry as the amount demanded is nowhere near the revenue earned by the companies and in some cases, not even close to multiple years of revenue.
As for now, Sayta believes it is too early to say anything on the matter. One would have to wait and watch the ongoing developments.