States Concerned over Retroactive Taxation for Online Gaming Companies

The 52nd GST Council Meet occurred on Saturday, 7th of October, 2023, just one week after the GST for online gaming companies was raised. This time, concerns were raised over the retroactive taxation that has been announced, leaving companies like Dream11 and Delta with tax demands exceeding combined consolidating operating revenues several times over.

Tax notices are issued for higher amounts than industry value

The last few weeks have been ripe with the news of several big online gaming companies being dealt tax notices greatly exceeding their revenues, highlighting what could be the end of the rising gaming industry in India if allowed to proceed.

During the meeting, Delhi’s Finance Minister Atishi raised her concerns regarding the recently hiked GST on online gaming, horse racing, and casinos: “An industry whose revenue is Rs 23,000 crore, you are slapping a tax notice of Rs 1.5 lakh crore…this is to kill the industry. This shows an unsafe, erratic investment environment in Indian startups.”

Mauvin Godinho, Minister for Goa Industries and Panchayat, who also joined the GST meeting, agreed, commenting that “a company with a net worth of Rs 4,000 crore cannot pay Rs 16,000 crore as tax. Nowhere does it happen that (when) any new tax is imposed or the rate of taxation is increased, it is done with retrospective effect. Most of the states said this is an anomaly that has to be corrected,” and added that “once they realize it is bad in law, they will automatically withdraw the notices[…] after it has been brought to the notice of the Council. This issue was raised and discussed[…] decisions which can lead to closure of the industry will never be taken.”

New GST bracket taxation is not retrospective, Revenue Secretary states

While the increase of GST from 18% to 28% is the new reality within most states, 18 of which have already brought the required amendments in their state GST laws, it is the tax notices requesting huge amounts of tax to be paid retroactively that has shaken the industry to its core.

However, Revenue Secretary Sanjay Malhotra clarified that the affected companies already had existing liabilities and that this is not a case of retrospective taxation, “there was some discussion on it (GST notices issued), certain members did raise this issue, and they were informed that this is not retrospective in any way because this is how the law was earlier. The law has not been amended retrospectively, so these liabilities were already existing… they were already attracting (GST of 28%) by virtue of entry in betting and gambling. So, because the Council has not decided anything for the past, it’s a prospective legislation. Whatever was the law as it existed earlier, it was clarified to them that it is because of this that those notices have gone to them.”

The government continues to state that previous taxation applied to the gross bet value despite the ongoing conflict between the government and companies who have based their previous tax payments on the GGR (Gross Gaming Revenue) rather than the gross bet value.