The Supreme Court has agreed to hear urgent petitions from online gaming companies this Friday, as they seek a stay on Goods and Services Tax (GST) demands and related proceedings. There are concerns that the final hearing on the constitutional validity of the GST imposed on these companies could be lengthy, potentially leading to adverse actions such as tax recoveries, freezing of bank accounts, and the issuance of summons, Business Standard reported.
In July 2023, during its 50th meeting, the GST Council moved online games—both skill-based and chance-based—into the 28 per cent GST slab. This new tax rate, effective from October 1, 2023, replaced the previous 18 per cent rate for skill-based games. In December 2023, the Rajya Sabha disclosed that online gaming companies had received 71 show-cause notices for GST evasion totaling ₹1.12 trillion for the fiscal year 2022-23 and the first seven months of 2023-24.
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The main point of contention in the GST debate is the categorisation of online gaming services, and determining the appropriate tax rate. The argument revolves around whether the correct rate should be 18%, which is generally applied to services, or 28%, imposed on betting, gambling, and similar activities. This classification issue carries substantial financial consequences for the gaming industry, as a higher tax rate would lead to a notable increase in their tax obligations.
According to reports, numerous businesses are facing the threat of bankruptcy or shutdown. The Supreme Court has received over 24 petitions contesting the GST Council’s recent decision to levy a 28% tax on online gaming firms starting October 1, 2023.
In addition, the valuation of these services for GST purposes is a critical concern. The key question at hand is whether GST should be charged solely on the revenue generated by gaming companies—usually their platform fees or commissions—or on the total amount pooled by players. Applying a higher rate to the entire pool amount would result in a significantly heavier tax burden, potentially threatening the sustainability of these enterprises.
“The online gaming companies are hopeful that the court will grant some form of interim relief to ensure their operations remain uninterrupted and to protect them from unnecessary hardships while awaiting a final resolution,” Abhishek Rastogi, founder of Rastogi Chambers, was quoted in the report.