Tax tussle: Govt not in favour of banning foreign gaming platforms

MeitY feels these are not a security threat

The government is not in favour of the Department of Revenue’s recommendation of “banning” 200 offshore online gaming sites. According to officials, “economic-linked matters like revenue loss cannot warrant a ban”. The government is of the considered view that these platforms are still not a serious threat to internal security.

The Central Board of Indirect Taxes and Customs (CBIC) had written to the Ministry of Electronics and Information Technology (MeitY) and other relevant ministries a month ago, seeking to impose a ban on foreign gaming firms causing revenue loss to the exchequer.             

“We had flagged the issue with MeitY and other ministries concerned and recommended a ban on these websites. After interministerial deliberations, it was conveyed that these could not be banned as such measures are only taken when they pose serious internal risk to the country’s security,” said a senior government official privy to the talks.

MeitY had initially blocked these websites but the foreign entities were able to change their domain names and continue offering their services to Indian users by circumventing taxes. These platforms masquerade as gaming sites and applications but engage in betting and gambling and help certain classes of entities even launder money, informed sources.

The CBIC is learnt to have sought a ban from ministries concerned when most firms refused to pay taxes, citing jurisdiction as plausible reason to not be liable to pay tax in India.

“We have written to every one of them and asked them to comply. But many have stated they are not obliged to pay taxes in India,” said an official quoted earlier.

Officials said these foreign gaming platforms, mainly operating from tax havens, are not compliant with the goods and services tax (GST) laws, in spite of providing services.

Foreign entities providing services in India are required to register as suppliers with the Online Information Database Access and Retrieval (OIDAR), as prescribed in the GST rules.

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

“In the past, we faced such challenges with educational and coaching online platforms operating from outside India. When we raised the issue, most registered and started paying taxes. We recovered a few hundred crores from them,” said another official, withholding the names of these sites.

Meanwhile, the CBIC is also in talks with the Reserve Bank of India on having an ironclad scrutiny on outward remittances through payment gateways.

“Enquiry into the matter revealed that certain classes of entities/users are using gaming platforms to launder money. Other intelligence agencies like the Enforcement Directorate are already investigating foreign exchange and money laundering rules violation. Cryptocurrency platforms are also being used to send money abroad which is later used for placing bets on these platforms,” said another official.

The quantum of tax evasion is, however, not yet known but it could run into thousands of crores, surmised officials.

The Directorate General of GST Intelligence had, in April, taken action against a Cyprus-based online gaming website Parimatch which was running an online betting and gambling operation in India. The director of the company was arrested in the case. The firm’s GST liability was estimated at Rs 20 crore. The official said that many similar websites have mushroomed in India over the past two years, regardless of gambling and betting being illegal in the country.

Tax tussle

• Issues such as revenue loss/tax evasion can’t trigger stringent measures like ban, govt feels
• CBIC is learnt to have sought ban after most of the platforms failed to pay taxes despite written requests
• GST law mandates offshore entities providing services in India to get themselves registered with OIDAR platform