After Gameskraft, More Online Gaming Startups To Receive GST Tax Claims

More online Indian gaming startups will reportedly receive a series of tax claims from goods and services tax (GST) authorities after the show cause notice was served to Gameskraft Technology for tax evasion.  

Hundreds of show-cause notices will soon be issued to the online gaming startups, casinos and other allied platforms by the GST authorities, a person, who is privy to the matter, told Mint.  

The development has come barely a day after the Directorate General of GST Intelligence (DGGI) issued a show-cause notice worth INR 21,000 Cr to Rummy parent Gameskraft Technology for evading tax on a betting amount of INR 77, 000 Cr between 2017 and 2022.  

Gaming startup Gameskraft Technology has reportedly filed a writ petition at Karnataka High Court quashing the DGGI’s notice, which will be heard today (27th September).

Prior to this, the DGGI also issued a notice to the said gaming startup on 8th September for misclassifying its services as games of skills and paying 18% tax rather than 28% tax for being an online game of chances and lottery.

The above-cited person said that Gameskraft is the first gaming startup to have received a show-cause notice. He further informed that DGGI has been working to issue such notices for over a year now.

Two advocates for online Indian gaming startups also informed that their clientele has received ‘exploratory communications’ from the GST body.

A show-cause notice to Gameskraft has been issued at a time when there is an ongoing controversy between gaming startups and GST authorities over a component of the gaming sector.  As per the rule 31(A) of CGST Act, GST is applicable over the gross gaming value (GGV) instead of gross gaming revenue (GGR). 

While playing online games, users combine their monies to form a prize pool, which is later used to pay out winners. The difference between the combined prize pool and winning is GGR. Meanwhile, the combined prize pool is called GGV. 

At present, an 18% tax is levied upon the GGR while industry stakeholders believe that a 28% tax should be imposed on gaming startups similar to other non-essential services. However, industry stakeholders are also concerned that levying a 28% tax on GGV will double the taxes paid (by these startups) and consequently force them to cease operations.

Recently, the Swadeshi Jagran Manch (SJM), an affiliate of the RSS, introduced the idea of regulating ticket size for individual users playing online games. SJM’s national co-convenor Ashwani Mahajan said that the entry fees should be capped to 50 rupees for users playing online games. 

Besides, an inter-ministerial group, set up by the Ministry of Electronics and Information Technology (MeitY), is also in the process of creating a framework to regulate the online gaming sector of India.