Decoded: Math Behind Rs 55,000 Crore Tax Notice Slapped On Online Gaming Companies

Last week, the Directorate General of GST Intelligence (DGGI) issued over a dozen show cause notices amounting to about Rs 55,000 crore to real-money gaming platforms. The mammoth tax notices had come just ahead of the 28% GST burden that online gaming companies in India have to bear this month.

How Was The Rs 55,000 Crore Calculation Done?

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The Directorate General of GST Intelligence (DGGI) has calculated the dues on the actual bets placed on portals since 2017. "In the case of Dream11, bets worth ?1 lakh crore were placed, and this has attracted a GST of ?28,000 crore-plus," said an official privy to the development. "Similarly, in the case of Games24x7 Pvt Ltd and affiliates, bets of over ?71,000 crore were placed, which has attracted a GST of ?20,000 crore-plus," said an official in the know, as per an ET report.

According to the official, GST has been calculated on every bet placed on the platform. "So even if an individual places four bets amounting to ?100, GST of 28% is applicable every time a bet is placed," the person explained.

Former Shark Tank India judge Ashneer Grover had last week reacted to the Rs 55,000 crore tax notices slapped on gaming companies, tweeting, "?55,000 crore GST demand ! I am intrigued ki Tax vaalo ke dimaag mein kya chalta hoga aise notice bhejte samay. The only explanation is - kuchh nahi. Monopoly ki game chal rahi hai bas. Na koi tax dega itna - na Sarkar ko milega. Milegi sirf vakilo ko fees jo SC mein ise challenge karenge. Bas another day of harassing businessmen. Agar itna GST banta tha to kya GST vaale 10 saal se so rahe the. Ya fir saare Big 4 accounting vaalo ko kuchh nahi aata ki woh companies ke tax audit pass kar rahe the. This is called ¡®retrospective tax¡¯. Aaj notification nikal di (as clarification) ki pehle se aap ka tax banta tha 28% on face value. Congress had Vodafone retrospective tax - BJP has Gaming GST retrospective tax. Lot changes and sometimes nothing changes."

?55,000 crore GST demand ! I am intrigued ki Tax vaalo ke dimaag mein kya chalta hoga aise notice bhejte samay. The only explanation is - kuchh nahi. Monopoly ki game chal rahi hai bas. Na koi tax dega itna - na Sarkar ko milega. Milegi sirf vakilo ko fees jo SC mein ise¡­ pic.twitter.com/BB1b9g3R4E

¡ª Ashneer Grover (@Ashneer_Grover) September 26, 2023

What Gaming Companies Expect Now

Executives in the real-money gaming industry estimated that the calculation used by the DGGI, which involves taxation of a deposit amount every time it is "rotated" through a game, i.e., each time a bet is made, could lead to tax liability rising by 1,300¨C1,400% on a yearly basis. In comparison, these platforms currently pay 18% of the commission charged on player deposits.

As opposed to this, the prospective taxation method suggested by the GST Council in August on "deposits" would lead to tax liability increasing by about 400% on a yearly basis, the executives added, declining to be identified as per the report.

What will compound problems for the real-money gaming industry is that the amount will attract an interest rate of 18% calculated for every financial year and a penalty, in case the adjudicating authority deems it fit to impose one.

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Also Read: 'Pizza Topping Is Not Pizza, So It Will Attract A Higher GST ', Says Haryana Appellate Authority

How Are They Responding To The Mammoth Tax Notices?

"After the issue of show cause notices, the firms have the option of appealing before the adjudicating authority (AA). The interest, however, kicks in from the date of issue of the notice. And if the AA rules in favour of the department, the interest will be applicable on the amount the AA orders and penalty, if he deems fit, which could range between 5% and 20%. While interest will be calculated on a yearly basis, penalty will be on the entire amount," added the official.

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Executives in the industry, however, were unsure of appealing before the AA, as that would also require firms to pay 10% of the claim amount up to a cap of ?100 crore. "A Dream11 might be able to muster that kind of an amount somehow, but it is unlikely that a smaller firm will even have enough cash to pay 10% of the claims made against them," said an industry lawyer.

After the issue of the pre-show cause (or DR01 A in GST parlance), industry representatives appealed to the government against the GST demands, as per the report.

"The industry has pleaded that the GST demand raised is 3¨C4 times their revenues and that they will have to shut shop. They have also said that these bets were placed as early as 2017, and there is no mechanism to trace the customer and ask him or her to foot the GST bill now. This means the dues will have to be paid by the companies themselves. While certain state governments are against a 28% levy on fantasy games, the Centre is of the view that this isn't an essential commodity and a 28% tax should be levied," another official added.

Also Read: Explained: What Is Congestion Tax, Which Bengaluru May Soon Impose To Reduce Traffic

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