In a massive crackdown, Indian tax authorities have issued notices to numerous online gaming companies demanding approximately 1 trillion rupees ($12.03 billion) in taxes that the companies allegedly evaded over the years, a senior government official revealed on Wednesday.
According to an Oct. 25 Reuters report, the notices come just two months after India implemented a new 28% tax on all funds deposited by users to play games on online gaming platforms. The tax prompted strong protests from the Indian gaming industry, with some companies like Mobile Premier League even laying off employees as a result. One anonymous government official commented:
The amount for which show cause notices have been issued to online gaming companies is around 1 trillion rupees.
Experts say that the 28% tax makes many online games financially unviable
Gaming companies argue they already pay 18% GST on the platform fees earned per game. However, the government counters that platform fees are only a fraction of the total pool deposited by users, which it suggests to be the actual revenue earned.
The GST Council has introduced significant amendments to the rules governing the taxation of online gaming. Under the new framework, the GST rate of 28% will apply to online gaming, regardless of whether these gaming activities are categorized as games of skill or chance.
Different GST rates were applicable in the previous system based on the online game’s nature. For example, games of skill (such as rummy or fantasy sports), which depend on a player’s expertise, were subject to an 18% GST rate. In contrast, games of chance (such as gambling and betting), where the outcomes rely mostly on luck, were taxed at a 28% GST rate.
Under the new framework, the GST rate of 28% will apply to the total value of the bets placed in online gaming
This GST rate shall apply regardless of whether these gaming activities are categorized as games of skill or chance.
As per the amended Central Goods and Services Act, online gaming is defined as offering games on the internet, including online money gaming. Online money gaming refers to online games where players bet money or virtual assets to win money or virtual assets, regardless of the nature of the game being based on skill or chance.
Furthermore, the Integrated Goods and Services Act has also been amended to introduce provisions requiring foreign suppliers offering online money gaming to charge GST to Indian customers. Online gaming businesses should proactively assess their tax positions and adapt their ERP systems and tax calculation processes to align with the amended GST regulations, ensuring seamless compliance.
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