Supreme Court's ruling to shape ₹1 T GST recovery for gaming and gambling firms

Online gaming platforms and casinos in India have recently received show-cause notices for reclaiming more than ₹1 trillion in Goods and Services Tax (GST). The Supreme Court’s decision will determine the recovery outcome, as per a government official on October 25, 2023.

An anonymous official revealed that a GST audit of these firms during FY18, the inaugural year of GST, uncovered a tax shortfall of approximately ₹1 trillion. Due to the imminent FY18 notice deadline, some of these notices were then consolidated in September.

“In the case of online gaming, one case has been decided by the Karnataka high court. That matter is before the Supreme Court,” the anonymous official said. 

“They will be deciding on the core issue. The recovery (of the tax demand) will depend on the outcome of court cases.”

Gameskraft Technologies dispute

The dispute involves GST authorities and Gameskraft Technologies Pvt. Ltd. In May, the Karnataka high court ruled in favour of Gameskraft, invalidating the ₹20,000 crore notice issued by the Directorate General of GST Intelligence (DGGI) for a 28 per cent GST on online gaming.

Nevertheless, the Supreme Court upheld the high court’s order in September following the government’s appeal. Tax authorities are not pursuing an aggressive recovery approach, awaiting the Supreme Court’s verdict on the 28 per cent GST for online gaming companies, providing relief to these platforms.

This relief has created a favourable environment for online gaming platforms like BitCasino, which can now offer exciting bonus buy in games to their players, enhancing the gaming experience.

The official did not disclose the total GST payment shortfall for businesses whose FY18 GST returns were audited. Sectors such as auto manufacturers and insurance have also received post-audit notices for outstanding tax payments.

The dispute over levying 28 per cent GST on online gaming firms, casinos, and horse racing clubs continues until the end of September. Since October 1, the government has modified tax laws to impose the highest GST slab on these entities.

The GST Council plans to assess the revised tax system’s implementation at the end of March 2024. As tax notices are being issued to companies for the first year of the indirect tax reform, the newly established GST Appellate Tribunal anticipates a surge in cases.

Spokespeople for the finance ministry, Central Board of Excise and Customs, and Gameskraft did not respond to emails sent on Wednesday. The mentioned ₹1 trillion show-cause notices specifically pertain to online gaming companies and casinos.

Consequences of payment failure

Online gaming platforms and casinos failing to pay GST dues may lead to penalties and legal action by GST authorities. The amended GST law now mandates overseas online gaming companies to register in India starting from October 1. Non-compliance with registration and compliance requirements may result in legal consequences.

The new tax regime, which significantly increases GST payments by around 1,000 percent, has already disrupted the online gaming industry. The regulations have already resulted in layoffs and shutdowns. Failure to meet GST obligations could force some gaming companies to cease operations.

Furthermore, the imposition of retrospective taxes has triggered prolonged international disputes with foreign companies. Failure to pay GST dues may negatively impact foreign investment in India’s gaming industry.

India has a long history of gambling laws, and the current situation for online gaming platforms and casinos is no exception. Before the Constitution of India came into effect, the country was governed by the Public Gambling Act of 1857. 

Presently, the only legally permitted forms of gambling in India include state-run lotteries in select states, horse racing, rummy card games, and casinos (operating in two states). These developments reflect the evolving landscape of gambling regulations in India, with ongoing discussions and considerations for the future.