Indian Gaming Industry Faces Existential Threat From Retroactive Tax Demands
India’s gaming sector is battling a massive tax demand, potentially forcing many companies to close. The Supreme Court’s intervention is now crucial for the industry’s survival.
GST Department’s Retroactive Tax Threatens Industry
The Goods and Services Tax (GST) department is seeking a 28% tax on the total betting pool from January 2018 to September 2023. This retroactive tax, applied before new GST rules were implemented in October 2023, has sent shockwaves through the industry, raising fears of widespread shutdowns.
The Economic Times reported that this action could cripple many gaming businesses.
The tax department has until February 5, 2025, to issue tax notices. After this date, these notices can be converted into payment demands. The industry is concerned that if these demands are enforced, many companies will be forced to close, further destabilizing the sector.
Supreme Court to Decide on Key Tax Questions
Legal experts say the Supreme Court will consider three crucial questions. These include whether GST can be applied to all money gamers deposit, if the tax can be applied retroactively, and whether games like poker, rummy, and fantasy sports are based on luck or skill.
If these games are deemed luck-based, they could be classified as gambling, potentially devastating the online gaming industry.
Gaming Companies Argue for Tax on Service Fees Only
Gaming companies are challenging the legitimacy of Rule 31A under the GST Act. They argue that the tax should apply to their service charges, which range from 5% to 20% of deposits, rather than the entire betting pool.
They maintain that deposits are not payments for goods or services, a position supported by some High Court rulings. However, the revenue department has appealed these rulings to the Supreme Court.
The high cost of compliance has already led to job cuts and business closures. Major players like Hike and MPL have reduced their workforce, while smaller startups like Fantok have ceased operations.
Government’s Tax Collection Drive Contrasts With Industry Support
Despite Prime Minister Narendra Modi’s call for Indian game makers to excel globally, the government’s tax collection efforts have intensified.
GST payments from the gaming industry surged by 412% in the first half-year of the new system.
The Supreme Court’s decision will ultimately determine the future of India’s gaming industry.
