The diligence of the tax authorities is likely to deliver decent dividends this financial year with the government hoping to recover GST of over Rs 50,000 crore that remains evasive. This will effectively mean an all-time high annual tax recovery. GST officials estimate that Rs 1.36 lakh crore has been evaded so far in 2023-24, of which Rs 14,108 crore has been recovered. In the previous fiscal, the quantum of evasion was above Rs one lakh crore, of which Rs 21,000 crore was recovered. Earlier, fraudsters employed strategies like undervaluing taxable goods and services, obtaining exemption notifications incorrectly and availing of incorrect input tax benefits. This year, however, several compliance measures have been put in place. While GST officials deserve praise for detecting greater evasion and striving to recover a much higher evaded amount than the last fiscal, they should be careful that their efforts do not bring pain to scrupulous businesspersons. They have been taxing crypto transactions, expanding the scope of online information database access and retrieval or OIDAR, taxing expats working in India deputed by parent firms overseas and special drives by Central and state governments, which, by all accounts, is a welcome development.
However, we can’t say the same about a flat 28 per cent taxation on online gaming. GST authorities have so far issued show cause notices worth Rs one lakh crore to online gaming companies for tax evasion. This follows the GST Council’s clarification in August that 28 per cent GST would be levied on the full value of bets placed on online gaming platforms. To be fair to the taxmen, they have to follow the GST Council’s mandate. And the GST Council—with representation from states, implying all major political parties—represents the entire political class. It is both astonishing and disheartening that the Council did not take into account the fact that the total size of the entire online gaming industry is around one-fourth of the Rs one lakh-crore tax demand that has been imposed! Come to think of it, had the Central government wanted, the Council would not have adopted a stance that could kill the online gaming industry.
The online skill-based gaming industry reportedly doesn’t object to the rise in the GST rate on online gaming from 18 per cent to 28 per cent; their contention is that it should be levied only on gross gaming revenue and not on the contest entry amount. Of course, there are also issues that need to be looked into, including the distinction between the games of skill and games of chance, which the tax authorities did not accept but the Karnataka High Court, whose May 11 judgment favoured the gaming industry, does. Tax demands by the GST authorities have been challenged in the Goa and Sikkim High Courts. Litigations and tax worries can spell doom for the $2.6-billion gaming sector that is estimated to grow to $8.6 billion by FY27. It employs 50,000 people, which could be increased in course of time. It is time the Centre comes up with a strategy that strikes a balance between the demand of GST authorities and the interests of the online gaming industry.
