Dream11 and other eGaming companies are faced with the threat of landing in a wider Goods and Services Tax net following a recent move initiated by the indirect tax department.
The gaming companies at present are paying GST on their commissions, whereas the tax authorities are questioning whether there should be a consideration for tax on the volume of entire transaction (the amount users deposit or escrow).
The gaming companies at present are reportedly paying 18% GST on their service fee or commission, which amounts to 20% of the total transaction. In monetary terms it would mean ₹ 3.60 tax on a bet of ₹ 100, whereas if the authorities argument is accepted the GST on the total transaction value would become ₹ 18.
According to a report by business daily Economic Times, the indirect tax department has started questioning some of the top leading online fantasy gaming companies to ascertain if there is a revenue leakage on account of the methodology used by these platforms to calculate and pay goods and services tax. The report states that the tax department has questioned officials from various gaming companies.
Since Fantasy sports is a new industry in India, there are no precedence on the tax determination. Tax authorities are working to determine whether the GST is applicable on the gross service fee / commission of the gaming company or on the total transaction. The total transaction includes the users’ (betters’) contribution to the prize pool.
“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,” the paper has reported with reference to a tax official aware of the development.
In response, eGaming companies body Indian Federation of Sports Gaming has reportedly reached out to the Ministry of Finance and the GST Committee for clarity on the issue.
Experts are divided on the issue. Some say that as per the valuation regulations, GST has to be paid on the whole transaction (total bets) and not a common mark-up (commissions).
People in the know say that the tax department would look at the “fact pattern” of the case when they scrutinise these transactions. As per the valuation rules, GST is to be paid on the total consideration.
The only exception to the rule, according to the people cited, could be deposits. But as per definition a deposit is a sum of money paid by and returned to the same individual, which is not the case with online gaming.
Meanwhile, fantasy gaming companies are relying on a Punjab High Court judgement declaring eGaming a skill-based sport to differentiate it from being clubbed under gambling or lottery, where GST is applied on the gross lottery collection at 28%.