Skill-Based Online Gaming Platforms Are Now Confronted With A Looming Retrospective Tax Liability Of Approximately INR 45,000 Crore

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The complex tax landscape for online gaming companies in India has taken a dire turn, with platforms offering games of skill potentially facing an overwhelming additional tax burden amounting to nearly INR 45,000 Cr. The saga continues as the Central Board of Direct Taxes and Customs (CBIC) assesses pending Goods and Services Tax (GST) liabilities since the tax’s rollout in 2017, as reported by an official from the department.

Skill-based online gaming platforms had initially been subject to an 18% tax on their gross gaming revenue. However, recent decisions by the GST Council have sparked concerns, as the tax framework no longer differentiates between games of chance and skill. This change has significant financial implications, as the official source quoted CBIC’s internal assessment, highlighting the considerable shortfall of nearly INR 45,000 Cr in tax paid by skill-based online gaming platforms since the implementation of GST.

To address this issue, the Directorate General of GST Intelligence (DGGI) is reportedly preparing to issue notices to the affected companies. The CBIC’s calculations peg the total tax liability of the online gaming industry at over INR 50,000 Cr. This includes offshore gaming entities, responsible for a tax deficit of INR 12,000 Cr, as well as the INR 21,000 Cr tax demand raised against Gameskraft. As the DGGI sets its sights on collecting the remaining INR 12,000 Cr through retrospective tax from other companies, the sector finds itself navigating a challenging legal and financial landscape.

Despite the Karnataka High Court’s dismissal of the tax demand raised by the DGGI against Gameskraft, the Centre has lodged a special leave petition with the Supreme Court, contesting the decision. In response to the industry’s concerns, an official referred to in the report indicated that every online gaming company dealing with real money transactions would now be subject to a uniform 28% GST rate, potentially leading to substantial balance tax payments.

Recent legislative developments have further exacerbated the situation. Amendments to the Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) laws, approved by the Parliament on August 11, support the changes imposed by the GST Council on July 11. The new regulations are scheduled to take effect from October 1, prompting a significant shift in the tax landscape.

The implications of these tax changes have been profound for online gaming startups. Many companies have been hit with a staggering 400% increase in GST liabilities, sparking concerns within the industry. The situation has prompted a wave of cost-cutting measures, with online platforms such as MPL and Hike already resorting to layoffs, having collectively released over 400 employees. The future of the sector remains uncertain, with potential acquisitions and further layoffs looming on the horizon as companies grapple with the new fiscal realities.


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