Inter-Dept Panel May be Set Up to Ensure Compliance by Online Gaming Platforms

An inter-departmental committee with representatives from ED, RBI, tax and consumer affairs departments may be set up to combat the proliferation of online gaming platforms and ensure regulatory compliance, a DGGI report said.

The GST intelligence wing of the Central Board of Indirect Taxes and Customs (CBIC) has initiated action against 118 domestic online gaming entities, and Show Cause Notices have been issued to 34 taxpayers involving tax amount of Rs 1,10,531.91 crore.

The notices were issued to these gaming companies as they were not paying GST at 28 per cent rate.

Furthermore, 658 offshore entities have been identified as non- registered/non-compliant entities and are being investigated by the DGGI. Also, 167 URL/websites have been recommended for blocking.

The Directorate General of GST Intelligence (DGGI) annual report 2023-24 flagged that online money gaming' is a "high-risk" industry for tax evasion, money laundering, cyber frauds, juvenile delinquency and various socio-economic evils.

Despite the legal clarity with effect from October 1, 2023, bringing the gaming entities under the tax net continues to be an uphill task.

Many such firms are set up in offshore tax havens (i.e. Malta,Curacao Islands, British Virgin Islands, Cypress etc.) known for their opacity, thus making it difficult to ascertain their ultimate ownership.

There are online gaming platforms which keep on changing their URL/website/apps to avoid tax compliance. Use of dark web or VPN based platforms for such supply further accentuates the difficulties in tax law enforcement, the DGGI said.

"Therefore, a multi-prolonged approach to deal with this sector is need of the hour. An Inter-department committee comprising CBIC, CBDT, ED, MeITY, MCA, MIB, RBI, Department of Consumer Affairs, and the like along with industry bodies may be set up to develop comprehensive strategies and regulations to combat the proliferation of such platforms, ensuring regulatory compliance, consumer protection and national security," the DGGI said in its report released on Saturday.

In October 2023, the government clarified in the GST law that online gaming attracts a 28 per cent tax on the total sum deposited by the players with the entity.

The online gaming industry has grown exponentially in the last few years, at a CAGR of 28 per cent, reaching Rs 16,428 crore in FY23-24 as per an estimate.

This boost is largely attributed to factors like widespread smartphone penetration, improved internet connectivity, a growing youth population and the development of local gaming content.

Several of show cause notice recipients have approached the court filing Writ Petition against the notices, and the matter is sub-judice before the Hon'ble Supreme Court of India.

The noticees have essentially contended that games like rummy, poker and others are games of skill and, therefore, cannot be classified as betting/gambling. The terms 'betting' and 'gambling' are not defined in GST law.

"Sir William Raynell Anson, a renowned British jurist, has defined a wager or bet as 'a promise to give money or money's worth upon the determination or ascertainment of an uncertain event'. The Hon'ble Supreme Court's verdict on the matter shall have a significant impact on how the concept of online money gaming is understood," the DGGI said.

Creating awareness and education among digital nagriks about safe and responsible gaming practices, promoting the use of legitimate platforms registered with MeitY or verified as permissible Real Money Gaming Platforms under the IT Rules, 2021, and entering into reciprocal arrangements with foreign governments for information sharing and tax enforcement may go a long way in effecting regulatory compliance in this industry, the DGGI said.