GST Council Meet: Govt says not taxing online gaming firms retrospectively as states flag concerns

A host of online gaming companies have been slapped with exorbitant show-cause notices over the past couple of weeks.

The Central government has clarified to states that the Goods and services tax (GST) on online gaming companies is not being levied retrospectively, since the law remains the same as certain online games that involved betting always attracted 28 percent GST.

Certain states during the GST Council meeting on October 7 flagged the issue of retrospectively imposing GST on online gaming companies, according to Maharashtra minister Deepak Vasant Kesarkar.

"It was informed to certain members that this is not retrospective and this was the law earlier. These liabilities was already existing because money online games played with bets. ..they were already attracting by way of betting or gambling 28 percent GST," Revenue Secretary Sanjay Malhotra said during a briefing after the meeting.

A host of online gaming companies have been slapped with exorbitant show-cause notices worth Rs 55,000 crore over the past couple of weeks for allegedly evading dues arising out of GST, with some demands dating back to 2017. Many have termed this as retrospective taxation since the flurry of notices pertain to the period before the implementation date of October 1, 2023, that paved the way for a new tax treatment for gaming platforms.

Chhattisgarh Minister TS Singh Deo also said that the Council discussed the issue of retrospectively taxing online gaming under the indirect tax regime, adding that states pointed out that dues being demanded from some firms "is much more than their turnover."

“The total income of gaming companies in 2022 was around Rs 20,000-22,000 crore, but the tax demand raised against them is to the tune of Rs 55,000 crore. If the sector’s value is less than the demand raised, then there is a problem,” Sudipta Bhattacharjee, a partner at Khaitan & Co., a legal firm, told Moneycontrol on October 4.

In August, the GST Council announced the decision to amend the indirect tax law to clarify that all online games involving wagers, irrespective of whether they are based on skill or chance, will attract a GST of 28 percent on the full value of the bets placed –not on the gross gaming revenue – from October 1. However, the notices for the period before this date seem to be stemming from these amendments, with tax officials saying they calculated the dues by levying a 28 percent tax on the full value of the bets placed.

But, the central government maintained that the show-cause notices follow a clarification of the law rather than a change and the demand for dues is not retrospective in nature.

"While the demands for the prior periods will have to be disputed on various grounds, it is critical for the businesses to tweak their revenue structures and IT systems to align with the new law," according to Prateek Bansal, Partner, White and Brief, Advocates & Solicitors.

Previously, online gaming companies paid 18 percent tax on the platform fees because the law was ambiguous, while betting and gambling always fell under the 28 percent slab. The provision under the GST law on taxing betting and gambling is now being invoked in the case of online gaming platforms.