Following Dream11, Online Gaming Cos Move Court Over Tax Demand

Several online gaming firms, including fantasy sports giant Dream11, have taken legal action following pre-show cause notices issued by the Directorate General of GST Intelligence (DGGI) over the past week. The notices represent some of the largest indirect tax demands in Indian history, with Dream11 receiving an INR 25,000 Cr notice alone.

Following Dream11’s lead, Games 24×7 and Head Digital Works have also filed petitions, according to an ET report. The companies are challenging the retrospective application of GST on their revenues, especially before the GST Council’s July decision to impose a 28% tax on the full-face value.

Additionally, Gameskraft, which was served with a tax notice worth INR 21,000 Cr last year, is fighting a legal battle with the government in the Supreme Court. While the apex court stayed a Karnataka High Court decision to quash the tax demand, the outcome of the case will set a precedent on taxation that would likely decide the fate of online gaming companies.

The industry, on the other hand, has called the tax demand ‘insurmountable’. The impact of increased GST has already been felt across multiple companies, that have either cut employees loose to save some cash or are contemplating getting acquired. 

Some online gaming companies such as Fantok have even shut shop in the face of increased tax liability.

“There is no option other than going to court… the tax demands are massive compared to the revenues being made by companies. These firms can amend their business models to pay tax as per the new regime but paying tax on the previous year’s revenues is insurmountable,” the ET quoted a person with knowledge of the matter as saying.

The DGGI has issued around a dozen pre-show cause notices to online real money gaming (RMG) companies regarding GST dues totalling around INR 55,000 Cr. The agency is set to issue notices this week too, which might take the total GST demand to INR 1 Lakh Cr.