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The Central Government has authorized the Directorate General of GST Intelligence (DGGI) to issue blocking notices to online gaming sites and mobile applications that are failing to comply with the goods and services tax (GST) regulations in the country.
According to a press release from the Ministry of Finance published this week in the Gazette of India, the new regulation empowers the DGGI-HQ under Section 14A(3) of the Integrated Goods and Services Tax Act, 2017. This provision enables the government to block any “information generated, transmitted, received, or hosted on any computer resource” used by online gaming operators that have not fulfilled their tax obligations.
Online gaming companies in India are required to pay a 28% turnover tax for skill games, which was increased from 18% in October 2023. The new tax rate was reaffirmed following a performance review in September 2024.
However, operators have struggled to meet up, with the DGCI reporting that the online real money gaming industry was responsible for the highest amount of GST invasion in the Financial Year 2023-2024. The agency reports that the sector evaded a total of Rs. 81,875 crore($9.5 billion) in taxes across 78 cases in the 2024 Financial Year, also highlighting significant challenges and compliance within the rapidly growing industry.
Under the new regulations, operators must register under the Simplified Registration Scheme of the IGST Act and appoint a representative based in India to handle GST remittances. Operators who fail to comply could see their site and app blocked in the country.
Before the new act, a blocking order had to be submitted to the Ministry of Electronics and Information Technology, but the DGCI now has the authority to issue take-down notices directly to failing operators.
The government has also designated the Additional/ Joint Director (Intelligence) as a nodal officer for the task, responsible for guiding the DGCI in identifying businesses that create and submit fraudulent GST certificates and preventing the use of communication platforms like WhatsApp for illegal transactions.
Gambling Operators Seek GST Relief in Supreme Court
At least two gambling operators in the country have filed “interlocutory applications” with the Supreme Court to prevent harassment by the tax office until a case challenging the GST rate is resolved.
The ongoing case will also examine whether GST should be imposed on the full deposits made by players and if it can be applied retroactively for the period before October 2023. The court is also set to determine whether online games such as rummy, poker, and fantasy sports qualify as games of chance of skill.
A ruling on this matter could have significant implications, as the country’s 1867 Public Gaming Act prohibits games of chance, potentially banning large segments of India’s online gaming sector.
Since the new tax rate was introduced in 2023, it has been met with lots of harsh criticism from experts who believe it would cripple the growing industry. A June 2023 joint report from Ernst & Young and the US-India Strategic Partnership Forum (USISPF) analyzed the potential impact of the new tax rate on the sector and said, “Despite its promising trajectory, the industry currently stands at a critical juncture faced with challenges exacerbated by the recent GST amendments and regulatory ambiguities.
“The impact of the amendment is evident from the declining active user base, widespread consolidation, closures, layoffs, and a growing trend of companies seeking operations abroad.”
Source: iGamingBusiness
