Retrospective tax notices: Online gaming firms should approach govt, GST Council over 28% tax, say experts

Online gaming 28% GST

Online real money gaming companies, which are facing huge tax demands running into several thousand crores of rupees, should engage in a dialogue with the government to get more clarity on its recent move to impose 28 percent Goods and Service Tax (GST) on the full face value of the bets placed, experts said.

“It is imperative for gaming companies to engage in a constructive dialogue with the government. By apprising them of the wide-ranging impact of these tax demands, the companies could advocate for a more balanced approach,” said Ankit Jain, partner at Chartered Accountancy firm Ved Jain & Associates.

Jain opined that by approaching the government, the companies could push for the GST Council to implement these tax changes prospectively rather than retroactively, thereby mitigating immediate financial hardships while allowing for an adaptive business transition.

In July 2023, the GST Council, the body responsible for making recommendations on issues related to the implementation of GST, decided to levy a 28 percent GST on the full value of online gaming, with no distinction between games of skill and chance. The tax slab rate was made applicable retrospectively, as a result of which the online gaming companies started receiving demand notices for the past period. On September 28, the Central Board of Indirect Taxes and Customs (CBIC) chairman Sanjay Kumar Agarwal clarified that they were ready to impose 28 percent GST on online gaming companies from October 1.

In the last week of September, Dream Sports, the parent company of Dream11 (Sporta Technologies Private Ltd), filed a writ petition in the Bombay High Court challenging a show cause notice issued by tax authorities for alleged goods and services tax (GST) evasion and non-payment of 28 percent GST on the face value of bets, for previous years.
Kishore Kunal, advocate on record at Supreme Court, said, “It is hoped that appropriate clarifications are issued by the CBIC especially on retrospectivity and on the value to be adopted. Depending on these clarifications, the companies may have to relook at the manner in which the businesses are being conducted and especially the payment streams, discounts, etc.”

In the meanwhile, the Gameskraft case reached the Supreme Court, stayed Karnataka High Court's judgment, which quashed a goods and services tax (GST) notice against Bengaluru-based online gaming company Gameskraft Technology for alleged evasion of Rs 21,000 crore.

Approach GST Council

A section of experts opined that the companies should approach the GST Council to get more clarity as the courts may not be able to do much as it is a policy decision.

Pallav Pradyumn Narang, partner at CA firm CNK, said, “The industry will have to approach the GST Council to seek clarification in this matter and to ensure that the rate and valuation rules are applied prospectively and not retrospectively as the department is now looking to do.”

“The only option with the industry is to work with the GST Council. The industry has made representation in the past but that perhaps was not up to the satisfaction of the Council. The FM has cited administrative difficulties in introducing multiple rates for this industry,” Rohit Jain, managing partner at law firm Singhania & Co, said. He noted that the industry has to engage with the Council again and address administrative challenges that they apprehend in addition to demonstrating that the present mechanism would kill the industry.

Court battle

Noting that the courts will inevitably have to decide on the issue, Vikramjeet Singh, partner, BTG Legal, said, “It does appear increasingly likely that courts will have to step in and examine the constitutional validity of regulations. State High Courts have already pushed back on gambling laws that seek to prohibit games of skill, for example.”

“It is the back demands from 2017 till date that are a hanging sword. These, however, are a result of aggressive interpretation of policy, rather than hostile policy. Hopefully, it will get resolved soon, as the matter is already before the Hon’ble Supreme Court,” Sanjeev Sachdeva, Partner, Luthra and Luthra Law Offices India said.