India Suspends Online Self-Regulation As Tax Attack Mounts

October 2, 2023
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India has dealt a new blow to the online gaming industry by suspending its industry self-regulation initiative mere months after announcing it, amid disagreement between government departments over industry policy.

India has dealt a new blow to the online gaming industry by suspending its industry self-regulation initiative mere months after announcing it, amid disagreement between government departments over industry policy.




The Ministry of Electronics and Information Technology (MeitY) on Thursday (September 28) told local media that industry self-regulatory provisions in force from April as part of an Online Rules scheme have been delayed until the home, law and finance ministries are on board with the changes.




“There is a discussion between the ministries that harmonisation should happen and everybody [should] be on the same platform before we go ahead,” the Economic Times quoted an unnamed government official as saying on Friday.




None of the ministries has formally confirmed the scope of disagreement on self-regulation, but The Hindu newspaper reported on Friday that non-MeitY officials are objecting to given the green light to self-regulatory body (SRB) activity when operator members are tax delinquent.




In an additional blow to the industry, MeitY officials are questioning the feasibility of the SRB model if leading online gaming companies dominate the SRBs.




SRB applications filed with the ministry by various industry peak bodies are now in limbo.




MeitY’s delays, if not backtracking, in implementing key planks of the Online Rules will intensify pressure on an industry already reeling from a disastrous shift in goods and services tax (GST) obligations.




The GST Council, a collection of central and regional government finance officials, imposed a 28 percent GST on all real-money gaming volume in July, shocking operators who had assumed a tax on gross gaming revenue would emerge.




The council softened the blow the following month by limiting the GST to initial deposits rather than volume, but the damage has escalated as tax authorities seek to recover crippling GST assessments in the billions of dollars over several years, at a higher rate and on the revised definition of volume.




The Directorate General of GST Intelligence (DGGI), whose legal battle with online skill gaming powerhouse Gameskraft Technologies in the Karnataka High Court, and now the Supreme Court, has turbo-charged the tax recovery effort, is making similarly enormous GST claims against leading companies Dream11, Play Games24x7 and Head Digital Works.




Dream11 has further complicated the legal response to the DGGI’s demand for billions of dollars with a writ petition in the Bombay High Court. Media reports place the DGGI’s claim against Dream11 between 250bn and 400bn rupees ($3bn-$4.8bn).




With “confirmed” or new GST provisions in force from Sunday (October 1), closures of small operators and retrenchments by larger companies are accelerating as operators respond to the radically changed tax environment.




The Hindu reported that Mobile Premier League (MPL) fantasy sports has sacked half of its 700 workers, Spartan Poker removed 125 employees, and Hike Rush Gaming Universe dumped more than one-fifth of its team.




India-facing operators such as Betway and bet365 have also shut down operations in India in response to tax legislation targeting non-registered foreign online gaming operators.




         

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