Why Online Gaming Firms, Casinos Are Facing Thousands Of Crores Of Taxes? Rs 1.5 Trillion GST Notices Likely

The popular game of 'CRAPS' is all about rolling the dice, where a player bets on the outcomes of the roll of a pair of dice. If your prediction is right on the dice, you win money over and above your betting amount. Sounds so simple, but everything depends upon your ability to predict the right outcomes! Sadly, this has not been the case for casinos and online gaming companies who are being run over with thousands of crores of tax demands. To be precise, a staggering Rs 1.5 lakh crore of GST claims are in question! There are two opponents here as well, the government and its tax notices versus casino and online gaming firms.

Companies like Delta Corp, Nazara Technologies, and even leading online cricket gaming app, Dream11 are being slapped with thousands of crores of tax demand notices.

The reason why these companies are facing such hefty tax notices is because of the 28% GST rate imposed on online gaming and casinos which has been approved by the Parliament in August.

In the 50th GST meeting, the committee led by Finance Minister Nirmala Sitharaman approved a 28% GST rate on Casinos, Horse racing and Online gaming on the full face value, irrespective of whether the activities are a game of skill or chance. Later on during the 51st meeting, the GST committee recommended certain amendments in the CGST Act 2017 and IGST Act 2017, including an amendment in Schedule III of CGST Act, 2017, to provide clarity on the taxation of supplies in casinos, horse racing and online gaming.

Accordingly, on September 6th, in a notification, the Finance Ministry amended the CGST Rules, 2017 and called it Central Goods and Services Tax (Third Amendment) Rules, 2023.

THE NEW CGST RULE:

According to the notification, the value of supply in case of online gaming including online money gaming:

- the value of the supply of online gaming, including the supply of actionable claims involved in online money gaming, shall be the total amount paid or payable to or deposited with the supplier by way of money or money's worth, including virtual digital assets, by or on behalf of the player.

- provided that any amount returned or refunded by the supplier to the player for any reasons whatsoever, including the player not using the amount paid or deposited with the supplier for participating in any event, shall not be deductible from the value of the supply of online money gaming.

For the value of supply of actionable claims in the case of casino:

Similarly, the notification stated that the value of supply of actionable claims in the casino shall be the total amount paid or payable by or on behalf of the player for -

(i) purchase of the tokens, chips, coins or tickets, by whatever name called, for use in the casino; or

(ii) participating in any event, including game, scheme, competition or any other activity or process, in the casino, in cases where the token, chips, coins or tickets, by whatever name called, are not required.

The notification lastly said, "Provided that any amount returned or refunded by the casino to the player on return of token, coins, chips, or tickets, as the case may be, or otherwise, shall not be deductible from the value of the supply of actionable claims in the casino."

THE CHAOS!

Truth be told, the 28% GST rate is an eye sore for online gaming firms and casinos in India.

Days after the amendment, leading casinos and gaming firm, Delta Corp was the first to face the brunt of CSGT rules, and the rest of the story is a downpour of tax notices at the doors of many online gaming firms and casinos.

Last week, Delta Corp and its subsidiaries including casinos received numerous tax notices to the tune of Rs 16,822.97 crore. The company is pursuing all legal remedies available to challenge such tax demands and related proceedings.

This followed a whopping Rs 55,000 crore GST notice on online gaming firms. Nearly half of this total, up to Rs 25,000 crore tax notice is slammed on the fantasy sports platform Dream11 which is also pursuing legal actions to challenge the claim.

The latest to suffer would be late market mogul Rakesh Jhunjhunwala-backed Nazara Technologies which has received a GST notice of nearly Rs 2.84 crore. However, Nazara is off the hook softly compared to others. In July, Nazara intimated that a 28% GST rate impact on its online gaming revenues will be minimal as this segment contributed just 5.2% of its overall revenue as of March 31, 2023.

After Delta's tax notice shocks, Nazara Tech shares were dumped from September 25th to 26th, however, after the GST notice, this Jhunjhunwala stock gained nearly 2% to end at Rs 840.75 on Thursday as investors took relief from the low tax demands compared to others.

Meanwhile, Delta Corp shares have nosedived by nearly 20% so far this week with the exception of a slight breather on September 27th.

But since the 50th GST meeting on July 11, Delta Corp stock has plummeted by nearly 43% on BSE. On the contrary, Nazara Tech has gained by at least 19% since then due to its less exposure to the GST tax rate.

Recently, Reuters reported that while global investors have urged Indian Prime Minister Narendra Modi to review the 28% gaming tax, citing an adverse impact on prospective investments of about $4 billion, the country's revenue secretary had clearly said there was no need to rethink the tax.

The government is all prepared to levy a 28% GST rate with effect from October 1, 2023.

CBIC Chairman Sanjay Agarwal said, "We are ready to implement a 28 per cent GST rate on online gaming from October 1 with the consent of all the states. The law for the GST rate on online gaming will have to be passed by the assembly of states. Show cause notices to some online gaming companies are legal process," ANI reported on Thursday.

Also, as per reports, the government is expected to pocket up to a massive Rs 1.5 lakh crore as GST claims from online gaming firms and casinos.

However, online gaming firms and casinos are not happy about the GST rate.

Ashneer Grover, who is the founder of the fantasy gaming app Crickpe, criticised the Rs 55,000 crore GST notice. The former co-founder and managing director of the Indian fintech company BharatPe through his Twitter now known as 'X' handler said, "₹55,000 crore GST demand! I am intrigued as to what would be going through the minds of the tax people while sending such notices?" The only explanation is -- nothing, he added.

Grover further tweeted saying, "The game of Monopoly is going on. If no one pays tax then the government will not get it. You will get fees only for those lawyers who will challenge you in SC," adding, "Just another day of harassing businessmen."

"If this much GST was made then why would GST remain so for the last 10 years? Or then all the Big 4 accounting people will not understand that they are passing the tax audit of the companies," Grover further said.

According to the investor on the reality TV show Shark Tank India, this is called a "retrospective tax". He added, ".. notification came out (as a clarification) that earlier your tax was 28% on face value. Congress had Vodafone retrospective tax - BJP has Gaming GST retrospective tax. Lot changes and sometimes nothing changes."

In the end, Grover also requested the Finance Ministry and Prime Minister Narendra Modi to address this issue -- as he believes it is not helping in achieving the country's $5 trillion economy target.