Online gaming firm Gameskraft served Rs 21,000 crore GST notice

Highlights

• In what could be one of the biggest indirect tax claims, the GST Intelligence Wing has served a show cause notice (SCN) of R21,000 crore on Bengaluru-based online gaming company Gameskraft Technology.  According to the GST department, the company has been served the notice for allegedly indulging in betting and gambling, and accordingly the company is liable to pay a GST of 28% on the ‘face value’ of collections made.

• The R21,000-crore notice to Gameskraft has been served despite the fact that the GST Council, the authority that takes all GST related decisions, is yet to take a final call on whether online games are game of skills or chance.

• Sources in the gaming industry told TNIE that an intimation notice was served earlier to Gameskraft in this regard, and the same has been stayed by the Karnataka High Court on 23 September. Meanwhile, a Gameskraft  spokesperson has termed the notice a departure from the well-established law of the land. “Games of skill are a constitutionally protected activity  as per the Supreme Court and various High Courts across the country,” the spokesperson said.

• The statement said: “We are confident that we will be able to respond to this notice to the full satisfaction of the authorities since they have sought to apply 28% tax applicable to games of chance and lottery, instead of the 18% applicable to online platforms of games of skill.” The online gaming industry has strongly argued that online games are games of skills and they should not be treated as gambling or betting. GST on betting and gambling is levied at 28%.

• The online gaming industry has pleaded that since online games are skill-based games, GST rate applicable should be 18%. Tax experts say the action on Gameskraft is a big blow to the gaming industry as this would lead to many more tax demands.  “Such high tax demands will also empower officers to initiate other proceedings related to attachment of property and prosecution. This would have an implication for entire industry, whereby we could see Pan-India ripple effect on 100s of online gaming companies,” says Rajat Mohan, partner in Chartered accountancy firm AMRG & Associates.

• Anita Rstogi, principal, Price Waterhouse & Co, says the other aspect (in the Gamescraft case) which merits consideration is on the valuation, that is, GST to be levied on face value or net value. The industry has also been making representation against the GST being levied on the total pool and not on gross gaming revenue (GGR).