After Dream Sports, the parent company of Dream11 (Sporta Technologies Private Limited) filed a writ petition in the Bombay High Court, several online gaming companies, including major players such as Games 24x7 and Head Digital Works, have reached the gates of the court.
According to sources cited in the Economic Times, several companies have been issued pre-show cause notices in the past week, requiring them to pay a total of over Rs 55,000 crore in goods and services tax (GST). Some of these companies have already taken or are contemplating legal action to resolve the matter.
Industry executives expressed concern about the huge impact this tax demand could have on the online gaming industry, which is already dealing with the risk of potential bankruptcies. Risk capital investors are worried that the added uncertainty might further dampen the funding environment for Indian startups, which has already been slow in recent months. Legal discussions within the gaming companies reveal that these platforms are primarily considering contesting the GST being applied "retrospectively" on their revenues prior to the GST Council’s decision in July to impose a 28 percent tax on the full-face value, ET reported on September 27.
Moneycontrol couldn’t verify the report independently.
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Dream11, one of the major gaming startups valued at $8 billion, has taken a proactive step by filing a petition with the Bombay High Court against the Centre and its various authorities. The company has argued that the notice and investigations "give retrospective effect to the amendment which has been made" effective from October 1, 2023.
The tax amount being sought by the authorities is described as “insurmountable” by industry executives. This significant tax demand poses a serious financial challenge and has the potential to push companies in the online gaming industry towards bankruptcy.
Also Read: Ashneer Grover criticizes authorities for hefty tax notices to gaming firms
“There is no option other than going to court... the tax demands are massive compared to the revenues being made by companies. These firms can amend their business models to pay tax as per the new regime but paying tax on previous year’s revenues is insurmountable,” the financial daily quoted a person with knowledge of the matter as saying.
Also Read: 'Will wipe out the entire industry', say online gaming cos after GST set at 28%
The Directorate General of GST Intelligence (DGGI) has taken action by issuing around a dozen pre-show cause notices to online real money gaming (RMG) companies, such as Dream11, Games 24x7, and Head Digital Works, regarding GST dues totalling around Rs 55,000 crore. Among these notices, Dream11, a prominent fantasy sports platform, received a substantial GST notice amounting to over Rs 25,000 crore, the report said.
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