More than 100 online gaming apps operating in India are under the scanner of the Directorate General of Goods and Services Tax Intelligence (DGGI) for alleged tax evasion to the tune of approximately $1 million rupees. Many of these platforms have been issued notices, and two of them (Dream11, the only unicorn among fantasy sports apps, and Gameskraft) have challenged the notices in court.
In 2017-2018, an investigation was launched against these platforms after the change in the tax regime and the introduction of GST. Previously, the activity carried out by these applications was classified as ITeS (Information Technology Enabled Services) and had to pay lower taxes, while in the current tax regime they fall under the category of gambling/betting, which attracts a 28% GST.
“The main argument is that they pay taxes only on the platform fee they charge their users. However, the tax must be calculated on the entire total amount bet on these platforms,” explained a source familiar with the matter. The apps have now been asked to pay outstanding taxes from the past few years, along with interest and penalties.
Dream11 has received two show cause notices for alleged tax evasion amounting to $28,000 crore, the highest indirect tax demand notice till date. The notices were served in September, one each for the state and central GST departments.
The company has filed a petition in the Bombay High Court challenging the notifications and retrospective application of the tax regime. In its plea, it has argued that the games on its platform require a certain skill and knowledge of the sport and therefore cannot be classified in the category of betting for tax purposes.
“According to the notices, the activity on the platform is betting. It has also been categorized as such in the GST regime. So if the company, or the industry, wants this categorization to change, it still owes the government the tax under the current regime until the changes are accepted by the GST council and come into effect,” the source said.
Gameskraft approached the Karnataka high court, which quashed the tax evasion notices in May. After that, the central GST department filed a petition in the Supreme Court, which stayed the high court’s order. The hearing is likely to take place this week.
“The fate of taxes on the online gaming industry would largely depend on the Supreme Court’s decision in this case. The industries’ allegation that this may amount to retrospective taxation may not hold water as the show cause notices were issued with legal provisions in place since July 2017, when the GST was implemented,” the source added.
Other major platforms on DGGI’s radar include Mobile Premier League, Delta Gaming and Playgames24x7.