DGGI Issues Rs 55,000 Crore Tax Notices to Gaming Firms, Dream11 Receives Largest Notice
The Directorate General of GST Intelligence (DGGI) has taken action by serving pre-show cause notices to approximately 12 online real money gaming companies, revealing outstanding tax liabilities totaling a staggering Rs 55,000 crore. In a noteworthy development, Dream11, a prominent gaming unicorn, finds itself at the forefront, facing the largest tax notice amounting to Rs 25,000 crore.
These pre-show cause notices serve as a precursor to the income tax department’s formal show-cause notices, serving as a notification to companies about the extent of their tax obligations. According to reports, other gaming entities that have also received such notices include Head Digital Works and Play Games 24*7.
Experts cited in the report suggest that the cumulative value of all these notices could potentially reach a staggering Rs 1 trillion. These notices have been triggered by the recent increase in GST rates for real money games, which will now stand at 28 percent of the total bet placed at the entry level, effective from October 1.
It’s worth noting that in 2022, a substantial Rs 21,000 crore tax notice was directed at Gameskraft Technology, a Bengaluru-based online gaming company, marking one of the largest claims in the history of indirect taxation. However, the Karnataka High Court later invalidated this notice, prompting the revenue department to challenge the court’s decision. In early September, the Supreme Court upheld the High Court’s ruling and is scheduled to revisit the matter later this month or early next, setting a potential precedent for investigations in the online gaming sector.
Beyond online platforms, the DGGI is reportedly extending its scrutiny to casino operators for alleged non-payment of taxes. Just last week, Delta Corp was served a tax notice amounting to Rs 11,139 crore, inclusive of interest and penalties, for purportedly failing to pay GST on the gross bet value. Delta Corp has expressed its intent to pursue all available legal avenues to challenge these actions and proceedings.
The recent rule changes have clarified that taxes will be levied on the amounts users pay to engage in online games, without distinguishing between games of skill and games of chance, a point of contention in several cases.
Furthermore, the updated rules provide a new definition of “online money gaming,” encompassing games that involve both skill and chance. The definition also encompasses online gaming as “an offering of a game on the internet or an electronic network, and includes online money gaming.”
Despite dissent from a few states, such as Goa, Sikkim, and Delhi, the GST Council made the decision to impose the highest tax rate without the need for a formal vote, as the majority of states were in agreement. Subsequently, the proposed amendment in the Central GST Act received parliamentary approval.
