Gaming industry sees tax liability increasing by 1,400% on DGCI calculation

An official said that companies have pleaded that the GST demand raised is 3-4 times their revenues and that they will not be able to survive this

The Directorate General of GST Intelligence (DGGI) has calculated outstanding dues based on actual bets made on portals since 2017, as reported by The Economic Times (ET).

An official informed ET that bets exceeding Rs 71,000 crore were placed in the case of Games24x7 Pvt Ltd and its affiliates, attracting a Goods and Services Tax (GST) of more than Rs 20,000 crore. For Dream11, bets amounting to Rs 1 trillion were made, drawing a GST of over Rs 28,000 crore.

The official noted that GST has been estimated for each individual bet placed on these platforms. For example, if a person places four bets totalling Rs 100, a GST of 28 per cent is applicable each time a bet is made.

According to industry insiders, the DGGI's method of taxing the deposit amount every time a bet is placed could increase the annual tax liability by 1,300 to 1,400 per cent. At present, these platforms are taxed 18 per cent on the commission charged on player deposits.

Contrastingly, executives stated that the prospective taxation approach recommended by the GST Council would cause the yearly tax liability to rise by approximately 400 per cent.

The official clarified that companies can appeal before the adjudicating authority (AA) following the issuance of show-cause notices. Interest would start accruing from the date of the notice's issue. If the AA rules in favour of the department, the interest and any penalties, ranging from 5 to 20 per cent, would be applied to the amount ordered by the AA.

An industry lawyer commented that while a company like Dream11 might be able to pay such a large sum, it is uncertain whether smaller firms would have sufficient cash to meet even 10 per cent of the claims against them.

Industry representatives have appealed to the Centre against these GST demands. Another official indicated that companies argue that the GST amounts demanded are 3 to 4 times their revenues, rendering them financially unsustainable. They further noted that these bets were made as far back as 2017, and there is no mechanism currently to identify the customer and ask them to cover the overdue GST.