₹1.5 tn in taxes? The gamble with online gaming

livemint.com:

₹217 crore against Dream11’s FY18 revenue of ₹228 crore, and ₹1,006 crore against FY19 revenue of ₹802 crore. In September last year, it asked Bengaluru-based Gameskraft for ₹21,000 crore GST against its FY22 revenue of ₹2,112 crore. Three lawyers for multiple gaming firms, as well as a senior government official, confirmed that more such notices are in the works.

The total tax claim from the entire industry may reach ₹1.5 trillion, they said. In its September 2022 claim against Gameskraft, the DGGI said that the startup misrepresented its business category, and that it is actually a gambling and not gaming firm. A lawyer for a top gaming firm said the DGGI is filing retrospective claims based on the Centre’s new 28% tax rate on the sector.

Its notice to Dream11 said “the entire contest entry amount constitutes the value of taxable supply"—reaffirming that while gaming firms computed tax at 18% (the previous tax rate) of their net earnings, DGGI’s computation is based on 28% of their gross revenue. This can be 15-16x what firms have so far paid in taxes. If a gaming startup receives ₹100 from a user as a fee to play a game, they earn around ₹10 as ‘platform fee’.

Prior to the new tax, startups were paying GST at 18% on this ₹10—or ₹1.80. The new tax regime mandates GST at 28% on the entire ₹100. This takes the DGGI’s tax claim up 15 times, compared to how companies had so far computed tax, a substantial difference.

Three top lawyers labelled the tax claims as disproportionate, since the demand exceeded the revenue of these firms. Two other lawyers said Dream11 is likely to receive retrospective claims of up to ₹40,000 crore, as against its FY22 revenue of ₹4,056 crore. Games24x7, which reported FY22 revenue of ₹1,169