All Play and No Tax makes the Coffers a Dull Place! The latest target in the crosshairs of the Revenue is the online gaming industry. Major stakeholders in the online gaming industry have filed urgent petitions before the Supreme Court of India challenging demand notices proposing retrospective levy of Goods and Services Tax ( GST ) at a rate of 28% on the industry.
The urgent petitions have been filed amid concerns that the final hearing pertaining to the constitutionality of the GST levy on the online gaming companies may take much time to be summarily decided upon, paving way for plausible adverse actions such as coercive tax recoveries, freezing of bank accounts, and issuance of summons preceding recovery proceedings.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here
Numerous petitions on similar grounds had been fragmented before the High Courts around the nation, all of which were transferred by the Supreme Court to itself in order to render a common order.
The developments come amidst the newfound powers vested upon the Directorate General of GST Intelligence (DGGI) to issue takedown notices against gaming apps and websites that fail to comply with GST regulations. Empowered by Section 14A(3) of the Integrated Goods and Services Tax Act, 2017 (IGST Act), the DGGI may not issue takedown orders under Section 69A of the Information Technology Act, 2000 bypassing the earlier requirement to channel such procedures through the Ministry of Electronics and Information Technology.
The move comes as a crackdown on multiple offshore enterprises functioning in India, often infamous for averting tax obligations on income generated in India.
During the 50th iteration of the GST Council meeting held in July 2023, the Council shifted both skill-based and chance-based online games into the 28 percent GST Slab, replacing the previous levy of 18% GST on skill-based games, effective from October 2, 2023..
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here
Stakeholders’ arguments are founded on the appropriate categorisation and GST levy – whether online gaming would be classified similar to services at 18% or attract a GST of 28%, similar to betting, gambling and similar activities.
A point of contention is whether GST should be levied exclusively on the revenue generated by the gaming companies or on the entire prize amount wagered by players. The prize pool is often a mammoth amount, attracting a much heavier tax burden if levied, possibly affecting the ability of these enterprises to stay afloat.
On January 10, the Supreme Court is expected to decide whether a stay shall be granted on numerous show-cause notices issued to online gaming enterprises, proposing retrospective levy of GST at 28%, all the way from October 2, 2023.
An Injunction Order by the Apex Court would assure the companies of no coercive action from the Revenue until a final decision on the constitutional validity of levy of GST is rendered by the Apex Court.
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