SUMMARY
- DGGI suggested a joint committee with representatives from the ED, RBI, and more to tackle the tax issues in the online gaming sector.
- CBIC has issued show-cause notices to 118 domestic online gaming companies with total tax demand of Rs 1,10,531.91 crore.
- DGGI has flagged 658 offshore entities as either not registered or non-compliant.
The Directorate General of Goods and Services Tax Intelligence (DGGI) has suggested the creation of a joint committee involving representatives from the Enforcement Directorate, Reserve Bank of India, tax and consumer affairs departments to tackle the tax issues faced by the online gaming sector.
The Central Board of Indirect Taxes and Customs (CBIC) has issued show-cause notices to 118 domestic online gaming companies. These notices carry a tax demand of Rs 1,10,531.91 crore, due to these companies failing to adhere to the required 28% Goods and Services Tax (GST) rate.
Additionally, the DGGI has flagged 658 offshore entities as either not registered or non-compliant. Moreover, 167 URLs and websites have been recommended for blocking to prevent illegal activities.
According to a report by PTI citing DGGI’s 2023-24 annual report, the online gaming sector is deemed high-risk due to its involvement in various social and economic issues, including tax evasion and juvenile crime.
Many gaming platforms are located in offshore tax havens like Malta, Curacao, and the British Virgin Islands. The use of the dark web and VPN services by these entities complicates the identification of those involved in tax evasion.
To effectively address these problems, the DGGI has proposed the formation of a detailed inter-departmental committee. This committee would include members from the Central Board of Indirect Taxes and Customs (CBIC), Central Board of Direct Taxes (CBDT), Enforcement Directorate (ED), Ministry of Electronics and Information Technology (MeITY), Ministry of Corporate Affairs (MCA), Ministry of Information and Broadcasting (MIB), Reserve Bank of India (RBI), and the Department of Consumer Affairs, along with relevant industry organizations.
The report also mentions that raising awareness and educating digital citizens about safe and responsible gaming habits, encouraging the use of legitimate platforms registered with MeitY or recognized as permissible Real Money Gaming Platforms under the IT Rules, 2021, and establishing partnerships with foreign governments for the exchange of information and enforcement of taxes could significantly improve compliance in this sector.
This initiative is being taken a few months after more than half of the online gaming companies in India experienced stagnant or falling revenues following the government’s imposition of a 28% Goods and Services Tax (GST) last year.
The online gaming sector has seen impressive growth, with a compound annual growth rate (CAGR) of 28%, reaching a valuation of Rs 16.4 crore in FY 2023-24.
