Amid Tax Tangles, Govt Mulls Panel To Ensure Compliance By Online Gaming Entities

The Directorate General of Goods and Services Tax Intelligence (DGGI) has reportedly proposed setting up an inter departmental committee with representatives from Enforcement Directorate, Reserve Bank of IndiaI, tax and consumer affairs departments to address the tax challenges in the online gaming industry.

The Central Board of Indirect Taxes and Customs (CBIC) has flagged 118 domestic online gaming entities with show cause notices. 

These notices involve a tax demand of INR 1,10,531.91 Cr , as these entities have been found non-compliant with the mandated 28% GST rate.

Furthermore, the DGGI has identified 658 offshore entities as either non-registered or non-compliant. In addition, 167 URLs and websites have been recommended to be blocked to curb illegal activities.

As per PTI’s report, citing DGGI’s annual report for 2023-24, the online money gaming industry is classified as high-risk due to its links with various socio-economic issues, including tax evasion and juvenile delinquency. 

Many gaming platforms are registered in offshore tax havens such as Malta, Curacao, and the British Virgin Islands.The use of dark web and VPN platforms by these entities makes it difficult to trace the ownership of the ongoing tax evasions.

To effectively address these issues, the DGGI has recommended the establishment of a comprehensive inter-departmental committee. This committee would include representatives from the Central Board of Indirect Taxes and Customs (CBIC), Central Board of Direct Taxes (CBDT), Enforcement Directorate (ED), Ministry of Electronics and Information Technology (MeITY), Ministry of Corporate Affairs (MCA), Ministry of Information and Broadcasting (MIB), Reserve Bank of India (RBI), and the Department of Consumer Affairs, along with relevant industry bodies. 

The report also said that creating awareness and education among digital nagriks about safe and responsible gaming practices, promoting the use of legitimate platforms registered with MeitY or verified as permissible Real Money Gaming Platforms under the IT Rules, 2021, and entering into reciprocal arrangements with foreign governments for information sharing and tax enforcement may go a long way in effecting regulatory compliance in this industry.

This development comes a few months after more than 50% of online gaming companies in India witnessed stagnant or declining revenues after the government last year imposed 28% goods and services tax (GST).

The online gaming industry has witnessed remarkable growth, with a compound annual growth rate CAGR of 28%, reaching a valuation of INR 16.4 Cr in FY23-24.