The ghost of Vodafone's retro taxation returns to haunt India's gaming sector
₹55,000 crore are reminiscent of the Vodafone direct-taxes saga. The notices include a GST notice for over ₹25,000 crore to fantasy sports platform Dream11, according to a report in the Economic Times, which also said the total demand could be ₹100,000 crore or more. There are two problems with these tax demands.
One, retrospective application of law is bad in principle. Two, it would crush the industry to pay dues that are many times its turnover. The law on online gaming, approved by the Goods and Services Tax Council, is yet to be amended by state legislatures.
The GST Council took the decision to raise the rates and recommended a 28% tax on the face value for online games, horse racing and actionable claims in casinos at the entry level. So, the GST rate for real money games is 28% on the total bet placed at the entry level of each gaming session on such platforms. The notices sent to online gaming companies are for their past dues from July 2017 onwards, when GST was rolled out.
Online gaming companies were initially charged 18% of the service fee on the platform. However, the government wants to charge 28% GST even on these past dues as it reckons that the amendment in law is clarificatory, meaning it was always the intent of the law to levy a 28% tax on the gross turnover of gaming companies. This could spawn litigation, just as it did in the well-known Vodafone case that related to direct taxes.
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