Tighter norms in works for offshore e-gaming platforms: Revenue dept

Registration may be mandated; declare purpose of transactions with banks

The Department of Revenue is planning to have a separate mechanism to track offshore e-gaming platforms and bring them within the ambit of the goods and services tax (GST). The mechanism in the works will ensure tighter declaration by Indian residents while making payments to these offshore applications (apps) and platforms via banking channels.

The department may also make it mandatory for foreign offshore entities to get GST registration within a specific period for tax purposes. Failing to comply would result in blocking their access to India and legal discourse for tax recovery, a senior bureaucrat told Business Standard.

The move follows the GST Council’s decision to impose higher taxes on the amount that home-grown online gaming firms collect from players. While preparing a draft rule on taxing domestic online gaming, the department is working to issue strictures for offshore e-gaming platforms to enforce new tax rules.

The mechanism will put the onus on residents to furnish details of the purpose of sending money to banks located on foreign shores.

For instance, they have to provide details about the app or platform during the transaction so that taxes can be paid immediately on the amount sent. In the event of incorrect disclosure, the resident will be subject to rigorous penalties under GST rules.

The e-gaming firms located overseas offer services to a large user base in India and do not pay taxes. These so-called gaming apps operate under the pretext of betting and gambling. Since these entities do not have a permanent establishment or a physical presence in India, it is difficult to restrain them, said another official privy to the issue.

Also, these entities frequently change their bank accounts maintained overseas, and tracing them is a problem. 

“To address this, we would trace their banking accounts in India and even overseas and nudge them to make payments to Indian authorities,” added the official quoted earlier.

According to the prescribed procedure, all offshore entities providing services in India are required to register as suppliers of Online Information Database Access and Retrieval (OIDAR) services under GST law.

But several offshore gaming platforms are not registered with OIDAR and, hence, manage to evade taxes. 

Also, the Foreign Exchange Management Act prohibits outward remittances for betting and gambling, and such activities can be probed by the Enforcement Directorate (ED).

Meanwhile, the Ministry of Electronics and Information Technology in April notified norms for the online gaming sector, which categorically prohibit all such games involving betting and wagering. Other intelligence agencies, like the ED, are already investigating violations of foreign exchange and money laundering rules violations.

In May, ED carried out searches on 11 premises in Delhi, seven in Gujarat, four in Maharashtra, two in Madhya Pradesh, and one in Andhra Pradesh. The agency has claimed that the scam may be worth Rs 4,000 crore.