29 Apr 2019 Jonas Lemberg

Online skill gaming companies face questions about manner of GST payments


As per a report in the Economic Times today, the tax department has started questioning some of the leading online skill gaming companies, including Dream11, to ascertain if there is a revenue leakage on account of the methodology used by these platforms to calculate and pay Goods and Services Tax (GST).

The indirect tax department is ascertaining whether GST is applicable on the total value of the transaction, i.e. the amount put in by the players for a particular game or the commission/platform fees retained by gaming companies for facilitating the transaction.

As of now, most online skill gaming companies have taken the view that GST is payable only on the commission/platform fees retained by them and the amounts put in by the players need not be subject to GST.

According to tax officials, more than half a dozen gaming companies have been questioned by the department, but the matter is currently under examination and no demand notices have been sent to any companies. In May last year, indirect tax officials had also raided the Jaipur office of fantasy gaming website MyTeam11 for allegedly not paying GST on the amounts collected by them.

The Indian Federation of Sports Gaming (IFSG) has made a representation to the Finance Ministry, GST Council and other authorities for clarity on the issue.

As per Rule 31A of the Central Goods and Services Tax Rules, 2017, the value of supply of actionable claim in the form of betting, gambling or horse racing is 100% of the face value of the bet.

Online skill gaming companies however believe that since their activities fall under the ambit of ‘games of skill’, they cannot be categorised as gambling or betting, and consequently this rule does not apply to them. They are further paying tax at the rate of 18% under ‘other services’ and not under the 28% tax bracket of gambling, betting or lotteries.

Commenting on the issue, Harsh Jain, CEO and co-founder of Dream11 told ET, “We pay GST on the gross consideration collected by our platform and not on our margins. Levying GST on user deposits would mean that it’s paid only once when users make their deposits and not every time they play in our contests with t heir winnings as well, which is when Dream11 provides a service to them. This is the same practice followed globally in every mature GST-following country. GST for online gaming companies is charged on their Gross Gaming Revenue,”

Tax experts from leading audit and consultancy firms however believe that there is a possibility of litigation on the issue due to the manner in which the GST Rules have been drafted. They further state that tax authorities are likely to closely scrutinise the issue in the near future.

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