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India's Tax Man Puts Online Gaming Operators On Notice

September 26, 2022
India’s central tax enforcer has issued a blanket warning to online gaming operators that it will imminently collect more than $12bn in unpaid taxes, compounding pressure on an industry under attack from multiple state governments.

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India’s central tax enforcer has issued a blanket warning to online gaming operators that it will imminently collect more than $12bn in unpaid taxes, compounding pressure on an industry under attack from multiple state governments.

The Directorate General of GST Intelligence (DGGI) told the Karnataka High Court last week that it is issuing show-cause notices to online gaming companies throughout India over tax arrears, the Business Today newspaper reported on Sunday (September 25).

The DGGI “is expecting to recover nearly [1trn] rupees [$12.3bn] in taxes from the online gaming companies”, the newspaper quoted an official source as saying.

The tax recovery campaign apparently started with GamesKraft Technology, a leading online rummy platform provider, which has received a show-cause notice for alleged evasion of 210bn rupees ($2.6bn) in goods and services tax (GST) based on wagering volume.

A GamesKraft spokesperson rejected the allegation of tax evasion.

“We are confident that we will be able to respond to this notice to the full satisfaction of the authorities since they have sought to apply 28 percent tax applicable to games of chance and lottery, instead of the 18 percent applicable to online platforms of games of skill,” the Business Standard daily quoted him as saying.

GamesKraft called the show-cause notice a “departure from the well-established law of the land”.

The DGGI has accused the company of evading tax between 2017 and June this year, and that player wagers were not invoiced for tax purposes.

In a boost for GamesKraft, the Karnataka High Court has stayed the show-cause notice ahead of a hearing on the dispute.

The DGGI crackdown coincides with delays to GST Council deliberations on the appropriate GST rate for online gaming with stakes, including games such as rummy and poker, as well as lotteries and horseracing.

The GST Council is preparing to meet next month, but the signs are not good for the online segment, with a council-selected group of state ministers opting for the maximum rate of 28 percent at a meeting earlier this year.

Industry angst over GST impacts dates back to 2017, when the council slapped the maximum rate on all gambling services, a decision that incensed operators and the racing industry in particular.

However, the key decision today is increasingly whether the GST will be paid on turnover or gross gaming revenue, a policy choice that advocates say will determine the feasibility of much of the industry.

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