Skill-Based Online Gaming Platforms Staring At INR 45,000 Cr Retrospective Tax Liability

The tax nightmare for online gaming companies refuses to show signs of easing as platforms offering games of skill are possibly looking at an additional tax liability of nearly INR 45,000 Cr.

The Central Board of Direct Taxes and Customs (CBIC) has assessed the pending GST liabilities of these companies since the 2017 rollout of the tax, per a senior official from the department, cited in an ET report.

While skill-based online gaming platforms paid an 18% tax on gross gaming revenue, the recent decision by the GST Council on the tax levy on online gaming does not differentiate between games of chance and skill. 

The tax differential, according to the official citing CBIC’s internal assessment, amounts to nearly INR 45,000 Cr less tax paid by skill-based online gaming platforms since GST’s implementation. 

For now, the Directorate General of GST Intelligence (DGGI) is working on issuing notices to these companies, the report added.

The CBIC has calculated the total tax liability of the online gaming industry at more than INR 50,000 Cr. The Indian gaming industry, dominated by real-money gaming (RMG) companies, has only paid around INR 5,000 Cr GST since 2017, per the ET report.

The figure includes offshore gaming companies (a tax shortfall of INR 12,000 Cr) and the INR 21,000 Cr tax demand raised on Gameskraft. As such, the DGGI might issue notices to collect the remaining INR 12,000 Cr in retrospective tax from other companies.

While the Karnataka High Court had quashed the tax demand raised by the DGGI against Gameskraft, the Centre filed a special leave petition in the Supreme Court earlier this month appealing the decision.

Meanwhile, the industry has requested that the changes not be applied retrospectively. However, the official cited in the ET report said that every online gaming company dealing with real money will attract a 28% GST and has to pay the balance tax.

The Parliament on Friday (August 11) approved amendments to the CGST and IGST laws that will enable the changes made by the GST Council on July 11.

Earlier, online platforms offering games of skill attracted an 18% GST, which led to a lengthy debate to differentiate between games of skill and chance. However, the GST Council did not make any distinctions between games of skill and games of chance, taxing the two types of online gaming platforms equally.

The laws are set to come into force on October 1.

The tax increase has translated to a 400% increase in GST liability for online gaming startups. As such, the GST decision is being touted as a ‘black swan’ event. MPL and Hike have already fired more than 400 employees among them in a bid to cut costs in the face of increased tax liability, with more layoffs and acquisitions expected in the industry.