India’s tax authorities are currently working out how to best tax online fantasy gaming businesses, after launching an inquiry into how GST is calculated, local media reports.
Online fantasy sports has been gaining traction in India, a country where sports betting is currently illegal.
According to people familiar with the matter, the tax department is essentially trying to determine whether GST should be applicable on just the net commissions (revenues) earned by fantasy gaming firms, or by the entire transaction amount.
Executives from more than half a dozen gaming companies have already been questioned by the tax department on the issue.
"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 (commissions) 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," said a tax official, quoted by the Economic Times.
The Indian Federation of Sports Gaming (IFSG), an industry body representing about 26 gaming companies, has reached out to the Ministry of Finance and the GST committee for clarity on the issue.
Dream11, one of the largest players in the market, says it pays 18 percent GST on its gross commissions, which is compliant with the current tax regulations.
"We pay GST on the gross consideration collected by our platform and not on our margins. Levying GST on user deposits would mean that it's paid only once when users make their deposits and not every time they play in our contests with their winnings as well, which is when Dream11 provides a service to them. This is the same practice followed globally in every mature GST-following country,” said Harsh Jain, co-founder & CEO, Dream11.
Should GST be charged on the total pool, the tax implications would be dire for many fantasy gaming companies, which said it could “shut down our businesses,” according to a top executive from one of the firms.
If no clarification is given by the government, experts say that litigation will be the only avenue left for operators to pursue.
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