Three points you will get to know in this article:
- Dream11 and the online gaming sector face rigorous tax scrutiny with substantial Goods and Services Tax (GST) demands, totaling a staggering Rs 18,000 crores.
- Gaming companies, notably Dream11, face show-cause notices over alleged misclassification and non-compliance with documentation requirements.
- Gaming industry expects a series of tax notices, hinting at potential collective tax liabilities exceeding Rs 1 lakh crore.
Once again, the online gaming sector finds itself in the crosshairs, grappling with a barrage of demand notices and show-cause directives. This time, tax authorities allege non-payment of Goods and Services Tax (GST), intensifying the scrutiny on industry players. Informed sources revealed to CNBC-TV78 that the Directorate General of Goods and Services Tax Intelligence (DGGI) has issued preliminary show-cause notices to no fewer than six online gaming enterprises.
According to information obtained by CNBC-TV78, it has come to light that Dream11, a prominent fantasy gaming company, has faced no less than four tax demands to date, accumulating to a staggering total of Rs 18,000 crore. Insights reveal that within this sum, there is a tax demand specifically amounting to Rs 6,000 crores, with an additional approximately Rs 12,000 crore attributed to interest and penalties. Informants suggest that Dream11 is actively involved in discussions with the Directorate General of Goods and Services Tax Intelligence (DGGI) to amicably resolve this issue.
What DCGI Alleges
As per insider information, the Department of Corporate Intelligence (DOCI) has raised concerns about discrepancies related to the misclassification of online fantasy sports gaming activities. They assert that Dream 11 failed to provide the necessary documentation, despite repeated reminders from the Directorate General of Goods and Services Tax Intelligence (DGGI).
The DCGI Mumbai Zone initiated an inquiry against Dream 11 back in September 2018. On September 14, 2023, the DCGI conducted a thorough inspection. While being scrutinized, Dream 11 proactively shared vital information and submitted relevant documents, specifically Form GST DRC 01 for the financial years 2017-18 and 2018-19, issued by the Maharashtra state government on September 12, 2023.
According to details provided by Dream 11, the Final Audit Reports were officially issued by the Maharashtra State authorities in January 10, 2022, and subsequently in January 2023. It highlights the comprehensive cooperation between Dream 11 and the regulatory bodies, ensuring transparency in their fiscal practices.
Dream 11 Files Writ Petition
In reaction to this development, the company took a decisive step by submitting a writ petition to the Bombay High Court in response to the show cause notice issued by the GST Audit authorities of Maharashtra State. The petition made a compelling argument, asserting that the company had not fulfilled its GST obligation of 28 percent on the nominal value of the wagers accumulated from July 2017 to March 2022.
Furthermore, it emphasized that the issued notices aimed to impose and recover disparate GST amounts based on the assumption that the provided services fell under the category of gambling.
Dream 11 has contested the assertion that the notices and investigations aim to levy tax on the entire Contest Entry Amount, deeming it ‘arbitrary and unreasonable.’ Insider information hints at a barrage of similar notices heading the industry’s way, with preliminary notices already dispatched to at least six online gaming enterprises, Games 24X7 being among them. Authorities have dispatched intimation notices, signaling the determination of payable tax through the DRC-OIA form. In the gaming realm, whispers abound that the collective tax obligations could soar beyond Rs 1 lakh crore, painting a complex financial landscape for the industry.
They mention that the majority of these notifications will be dispatched by the close of September. In situations where preliminary notices have already been dispatched, companies are urged by the DGGI to provide clarifications and present their position before definitive notices are drafted and dispatched.
It’s important to highlight that this development follows a recent decision by the Supreme Court, which, earlier this month, halted a Karnataka High Court ruling. The High Court had invalidated a show cause notice from DCGI, directing Gameskraft to remit an additional GST amounting to Rs 21,000 crore. Analysts propose that this legal intervention has empowered GST authorities to issue analogous notifications to other companies.
The authorities are set to implement GST regulations on additional gaming enterprises, mirroring the approach taken with Gameskraft. According to insiders, all these gaming entities are expected to adhere to the legal requirements.
In the face of mounting tax challenges within the online gaming sector, Dream11 has become a focal point, with substantial demands totaling Rs 18,000 crore. The company’s proactive cooperation with regulatory bodies, evidenced by the Final Audit Reports, underscores its commitment to transparency. Initiating legal recourse with a writ petition, Dream11 contests the GST obligations, shedding light on industry-wide repercussions. As the gaming realm braces for potential upheaval, the coming weeks will determine the industry’s fiscal landscape, marked by clarifications and potential legal battles.
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