Online gaming companies that used to claim they offered skill-based games are now facing the possibility of owing an extra tax of about Rs 45,000 crore, according to a report by ET. The Central Board of Indirect Taxes and Customs (CBIC) has looked into the GST (Goods and Services Tax) obligations that these companies have not fulfilled since 2017.
In the ET report, officials explained that these firms were initially taxed at 18% of their total gaming revenue due to their skill-focused games. However, the proper tax rate should have been 28%. This miscalculation has led to a tax shortfall of Rs 45,000 crore. The distinction between games of skill and games of chance for tax purposes has been eliminated.
The debate over whether online games are based on skill or chance has been ongoing. Some gaming companies have argued that their offerings are skill-based, and thus they should be taxed at 18%, not the 28% rate meant for chance-based games. However, on July 11, the GST Council changed the laws to treat all games equally, imposing a consistent 28% tax on the total betting amount.
A high-ranking CBIC official shared, “Based on our analysis, we’ve found that the gaming industry alone has paid ₹45,000 crore less in taxes since the GST was put in place.” The Directorate General of GST Intelligence (DGGI) is currently sending notices to these companies.
Companies that facilitate real-money gaming make up a significant portion, approximately 77%, of the online gaming sector. These companies have only paid less than Rs 5,000 crore in GST since 2017. However, their actual tax obligation goes beyond Rs 50,000 crore. This includes foreign gaming entities that have evaded taxes amounting to over Rs 12,000 crore and the Rs 21,000 crore levy on Gameskraft.
Recently, the government filed a special petition in the Supreme Court opposing the Karnataka High Court’s ruling that overturned DGGI’s tax demand notice on Gameskraft. The official mentioned earlier clarified that the latest amendment to the CGST (Central Goods and Services Tax) has made it crystal clear regarding the GST obligations of online gaming companies. “Every online gaming company that deals with money will be subject to 28% GST and will need to pay the remaining tax,” the official stated.
The Parliament approved changes to the CGST and IGST (Integrated Goods and Services Tax) laws, thereby enforcing the council’s adjustments. The industry is requesting that these amendments be applied only moving forward and not retrospectively.