India’s indirect tax department has begun questioning some of the country’s leading online fantasy and skill gaming companies such as Dream11 and others in a bid to ascertain whether there is a revenue leakage on account of the methodology that these platforms use to calculate and pay the GST (goods and service tax). In other words, the tax department wants to know if the companies are paying the proper amount of the tax or if they have opted for some creative accounting to make their tax calculations.
A recent report by the India Times revealed that the country’s indirect tax department is concerned that there may be revenue leakage and this is likely to be as a result of the methodologies that the gaming companies are using to calculate their taxes. To verify this, the department intends to find out whether the GST is being applied to the total transaction value or only the net revenues earned by the companies.
“The valuation rules (under GST framework) are quite clear that GST is levied on the consideration and currently there is no clarity as to whether the revenue charged by these companies be considered consideration or the total pool. In March, some companies were asked to explain why they shouldn’t be paying GST on the total pool,” one of the tax department’s officers explained.
As it stands, the department is already conducting an exercise that will hopefully help them to uncover the information and so far, a total of six different gaming companies have been questioned but no tax demand has been made yet.
Gaming Operators Speak Out
Shortly after the questioning of the executives by the indirect tax department, the Indian Federation of Sports Gaming (IFSG), an industry body that represents around 26 gaming companies including Dream11, reached out to the GST committee and the Ministry of Finance in an effort to have the issue clarified.
Some of the gaming companies that the IFSG do not understand why exactly they are being probed. Dream11, for instance, says that it has been complying with the law and pays 18 percent on gross commissions and not on the company’s margins. Harsh Jain, the company’s chief executive officer, pointed out that this is the same practice followed globally.
Needless to say, the Indian government will have to clarify on the issue otherwise, experts believe that there will be inevitable tax litigation. While there are parties that are of a different opinion, some of the tax experts in the country have suggested that as per valuation regulations, the GST is meant to be paid on whole transaction (total bets) instead of a common mark up or commission. In essence, what the tax experts are trying to drive at is the possibility that even though online gaming companies may argue that the GST is only applicable on the money they charge for the service, without any clarification, tax notices will be issued and this will, in turn, lead to litigation.