Do not want tax notices to kill online gaming industry: Govt officials

Right now the revenue department is preparing to send notices to establish the principle that online gaming companies need to pay 28 percent tax on betting games.

Even as the Central Board of Indirect Taxes and Customs (CBIC)  is planning to send show cause notices to 40 gaming companies for alleged tax evasion, there are concerns within the finance ministry that the slew of tax notices could seriously cripple the gaming industry and that a more  “considerate view’’ may be needed to be taken to ensure that the online gaming industry remains sustainable.

“Demand should be of a nature that industry will be able to sustain. We do not want to kill any industry. The idea is not to shut down the industry. We do not want to create a situation where the business ceases to function. That call the government may have to take,” a senior government official told Moneycontrol. But writing off these demands, once they are made, will be a challenge.

The alleged tax evasions pertain to the old GST tax rate of 18 percent levied on gaming and 28 percent on betting. The government will restart its drive to send show cause notices after the Supreme Court on September 6 stayed Karnataka High Court’s judgement which had quashed a Goods and Services Tax notice against Bengaluru-based online gaming company Gameskraft Technology for alleged evasion of Rs 21,000 crore.

In addition to issuing a tax demand to Gameskraft, the authorities plan to issue notices to 40 more online companies. The CBIC’s main charge in all these cases is that online gaming companies promoted online betting through money games and paid 18 percent tax instead of  28 pecent tax between 2017 and June 30, 2022.

Right now the revenue department is preparing to send notices to establish the principle that online gaming companies need to pay 28 percent tax on betting games.

But there is a realisation within the revenue department that all these notices and demands could fatally cripple the industry. “Though writing off the huge tax demand will be difficult, the government at a later stage may have to take a considerate view to ensure the online gaming industry sustains,” said the official.

The government is empowered to take a call that since the tax demand was not raised during those years when the evasion happened, so they can write it off. But writing off Rs 21000 crore with penalty for Gameskraft alone is not easy. When tax demand becomes so high, which is government money, giving any major relief to companies involved in real money games may raise a flurry of questions. Thus, multiple factors will have to be taken into account, the other senior government official told Moneycontrol.

The decision will have to be taken at the top level at a later stage as no one person can decide to give relief as it's government money. Once the tax demand is settled which is likely to be detrimental to the online gaming companies, then at that point of time, the government may take a balanced and considerate view, he said.

As per an EY-FICCI report, revenues of the online gaming segment in the country rose from Rs 7,900 crore in 2020 to Rs 11,900 crore in 2022. For instance, Gameskraft, the company that has been given a show cause notice of Rs 21,000 crore has touched Rs 2,112 crore in revenue during FY22.