28% GST move: E-gaming companies fear tax liability may rise to 400%

The online gaming industry fears it may face a “Vodafone-like” situation because the government demands 28 per cent goods and services tax (GST) from companies such as Gameskraft Technology Private Ltd (GTPL) for the period when the amen­ded law was not even in force.

Tax on a retrospective basis was imposed on Vodafone. The fear of retrospective demand may come to haunt the online gaming industry, they apprehend.

Even with the amended GST law, recently notified by the government, restricting the tax to entry deposits, industry sources said the tax liability on online gaming companies would increase over 400 per cent as against the 18 per cent tax on platform fees they paid.

Government sources, however, said there was nothing retrospective in the law because the amendments clarified matters. The law will come into force on October 1 this year and will be reviewed after six months, according to a decision by the GST Council.

GTPL was asked to pay 28 per cent tax on the face value, amounting to Rs 21,000 crore, for 2017-18 to 2021-22. Other companies, including MyTeam11 and Probo, too received GST notices, according to industry sources. While GTPL paid 18 per cent on platform service, amounting to over Rs 800 crore (from 2017-18 to 2021-22), GST officials contested this and imposed 28 per cent on the full face value of the bets.

The recent amendments, cleared by Parliament and notified by the government, excluded redeployment of bets won from the 28 per cent tax. If this logic were to be applied to Gameskraft, then the tax liability may reduce to Rs 5,000-6,000 crore, according to some experts. This, however, can happen only if the new law is retrospectively applied and fresh demand is raised on GTPL on that basis.

However, industry sources did not confirm the figure but said even if the 28 per cent tax was imposed on entry-level bets, the tax liability on e-gaming companies would increase by over 400 per cent effectively compared to the 18 per cent companies paid on the platform fee. “Rs 21,000 crore or Rs 5,000-6,000 crore is in thin air. The money that does not come to a platform should not be taxed to the platform. Only the revenue earned should be taxed,” an industry source said.

Even if the government charges 28 per cent tax on entry-level bets, it should be prospective, and from October 1, 2023. However, if the GST authorities apply the law retrospectively since it did not exist from 2017-18 to 2021-22, it will kill the industry because no one will have the money to pay, another industry source said.

When contacted, a senior government official said there was no retrospective amendment to the GST law.

“We are amending the law to clearly say that actionable claims in online games are liable to GST,” the official said.

He further said actionable claims other than betting, gambling, and lottery did not come within the scope of GST.

Earlier, GTPL was given notice for Rs 21,000 crore (plus interest and penalty), which the Karnataka High Court  set aside in May this year, ruling that games of skill even if they involved money could not be taxed in the same manner as gambling.

The government filed a special leave petition in the Supreme Court against the order. Meanwhile, it enacted the law to impose 28 per cent GST on fresh bets in online games.

Earlier, the NDA government had made a commitment that it would not ordinarily come up with retrospective amendments to laws, which led to fresh liabilities after the Vodafone case created a bad environment for investment.