Dream11, Delta and Others Slapped with ₹70,000+ Cr Notices

28 Sep 2023

DGGI’s Tax Evasion Demands Already Approaching 1 Lakh Crore

India’s principal indirect tax enforcement authority – the Directorate General of GST Intelligence (DGGI)- has reportedly issued the next batch of intimation notices to more than ten online gaming companies alleging unpaid GST dues worth around ₹55,000 crore.

The development comes just days after Delta Corp and three of its subsidiaries – Casino Deltin Denzong, Highstreet Cruises, and Delta Pleasure Cruises, were hit with notices demanding a total of ₹16,822 crore plus interest and penalty.

The new notices sent via the DRC-01 A form, which is used to inform the taxpayer about unpaid or underpaid GST and is often called a “pre-show cause notice,” include a ₹25,000 crore demand to India’s first gaming unicorn Dream11, ₹20,000 crore to Play Games24x7 and affiliates (RummyCircle, My 11 Circle, and other platforms), and ₹5,000 to Head Digital Works.

Together with the ₹21,000 crore show cause notice to Gameskraft Technologies, the DGGI’s officialized demands already exceed ₹92,000 crore, and with more notices reportedly expected in the coming weeks, the amount is set to soon exceed ₹1 lakh crore ($12 billion).

In the Delta Corp case, the tax evasion allegation demands an almost three times higher amount than the combined consolidated operating revenues of India’s only listed casino operator for the last ten fiscal years, which amount to “only” ₹5,924 crore.

“The Company and its subsidiaries have been legally advised that all the above notices and the tax demands are arbitrary and contrary to law, and the Company and its subsidiaries will pursue all legal remedies available to them to challenge such tax demands and related proceedings,” Delta announced in a filing to stock exchange regulators.

Following the news release on Friday, September 22, Delta Corp’s stock plunged 15% to a 52-week low at ₹149.10 on Monday morning at the National Stock Exchange (NSE).

Dream11 has also moved the High Court of Bombay against the GST evasion notice issued by the relevant tax authorities in Maharashtra. According to detailed reports, the investigation against the unicorn has been going on since September 2018.

Interesting Times for Homegrown Real Money Gaming

The recent Supreme Court stay on the Karnataka High Court ruling to quash the DGGI notice to Gameskraft was one of the events heralding the news that the party is over for India’s homegrown online real money gaming industry, at least on the taxation front.

The Karnataka HC decision from May this year caused GST enforcement officers to stop work on more than 35 tax evasion investigations on online gaming companies. Still, the interim stay issued by the Apex Court allowed the DGGI offices to proceed.

The sector that has spawned three unicorns was used to massive growth, and while other factors driving market expansion like rising smartphone and UPI payments penetration remain powerful, real money games (RMG), carrying 60% of all revenues from online gaming in the country, will now be taxed differently, and at par with games of chance like casinos, horse races, and lottery games.

The legal framework on which “over 60 years of settled legal jurisprudence” differentiating games of skill and games of chance was based is no longer active, as fresh amendments to the IT Rules and the GST legislation have come into force.

At the same time, none of the games that used to function legally and pay 18% GST on Gross Gaming Revenue (GGR) still knows whether it will be granted a “permissible online money game” status, as the four newly proposed Self-Regulatory Organisations (SROs) are not functional yet, amidst Union Government’s worries that the bodies might end up industry-dominated.

Despite the Union Minister of Finance’s assurances that “Once the policy certainty arrives, taxation becomes more … clear, it will attract investors,” the whole situation has abruptly dipped the business climate of growth in quicksand with massive layoffs across the industry starting immediately after the GST Council’s 50th and 51st Meets.

Gov’t Good Intentions Do Not Include Industricide

The swift slaughter of a whole sector, previously known as a “sunrise industry,” has not been among the intentions of India’s Union Government, according to unofficial assurances shared with the media by an anonymous source from the Center.

“Demand should be of a nature that industry will be able to sustain. We do not want to kill any industry. The idea is not to shut down the industry. We do not want to create a situation where the business ceases to function. That call the government may have to take,” the quoted official said, hinting that at some point the Government could end up in a situation where it would have to write off the enormous debts.

If the judiciary and the Supreme Court of India endorse the DGGI demands, writing off could be the only solution other than a total wipeout. Still, the source explained that such a decision would raise a barrage of questions and be very difficult to take.

In the meantime, at the recently held “Right To Excellence – Tech Summit 2023”, organized on September 22 in New Delhi by The Times of India and attended by the MoS for Electronics and IT Rajeev Chandrasekhar, industry representatives expressed their appreciation of the newly established by the Government regulatory certainty.

“There’s enough clarity now and the rules will provide stability of regulation,” Winzo Games CEO and founder Paavan Nanda, one of the speakers at the forum, said and pointed out that now the playing field for all kinds of games is level.