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Show Cause Notices Issued to Online Gaming Companies for Alleged GST Evasion, Says CBIC Chairman

Sanjay Kumar Agarwal, Chairman of the Central Board of Indirect Taxes and Customs (CBIC), has stated that the show cause notices issued to online gaming companies for alleged Goods and Services Tax (GST) evasions are in accordance with legal provisions. Agarwal emphasized that the tax demands being made are based on a strict interpretation of the law, demonstrating a uniform approach by the tax department. Furthermore, he noted that the government is fully prepared to implement amended GST provisions, effective from October 1, which include the imposition of a 28% GST on online gaming, casinos, and horse racing, as well as the mandatory registration of offshore online gaming platforms.

Recent reports indicate that online gaming companies may soon face significant tax notices totaling approximately INR 1 Lakh Cr from the Directorate General of GST Intelligence (DGGI). DGGI has already taken action by issuing nearly a dozen pre-show cause notices to various real money online gaming companies, amounting to approximately INR 55,000 Cr. One such company, Dream11, is pursuing a legal course of action and has filed a writ petition in the Bombay High Court challenging a show cause notice accusing them of GST evasion and non-payment of the mandated 28% GST on the face value of bets.

In a separate case, DGGI had previously issued a show cause notice of INR 21,000 Cr to Gameskraft for alleged indirect tax evasion related to a betting amount of INR 77,000 Cr between 2017 and June 2022. Gameskraft had challenged the notice in the Karnataka High Court, which ruled in their favor. However, the Supreme Court intervened and stayed the ruling in response to a petition filed by the tax department.

The gaming industry in India has faced significant challenges since the imposition of a 28% GST on the full face value of bets earlier this year. This has led to workforce reductions at companies such as MPL (Mobile Premier League) and Hike. Additionally, the Ministry of Electronics and Information Technology (MeitY) has postponed the establishment of Self-Regulatory Bodies (SRBs) for the gaming industry due to the need for clarity on taxation issues.

Sources:

– Article: “Show cause notices issued to online gaming players in accordance with legal provisions: CBIC chairman” (Times of India)

– Article: “Dream11 parent Dream Sports takes legal course against GST notice” (The Hindu Business Line)

– Article: “Online gaming firms set to face Rs 1 lakh crore tax demands” (The Economic Times)

– Article: “Supreme Court stays Karnataka HC ruling quashing ₹21,000-cr demand on online gaming platform” (The Times of India)

– Article: “MPL Layoffs Amidst GST Imposition” (ET Now)

– Article: “Hike Kicks Off Scaleup, Shuts China Office” (Inc42)