Modi government may form panel to regulate online gaming platforms
The Indian government is considering the establishment of an inter-departmental committee, to regulate online gaming platforms. This initiative aims to address the rapid growth of these platforms and ensure they adhere to regulatory standards. The proposed committee would include representatives from various departments including the Enforcement Directorate (ED), Reserve Bank of India (RBI), tax, and consumer affairs departments, according to a report by the Directorate General of GST Intelligence (DGGI).
CBIC takes action against non-compliant entities
The Central Board of Indirect Taxes and Customs (CBIC) has initiated action against 118 domestic online gaming entities for non-compliance with GST regulations. Show cause notices have been issued to 34 taxpayers, involving a tax amount of ₹1,10,531.91 crore. These companies were found not paying GST at the mandated rate of 28%. Additionally, DGGI is investigating 658 offshore entities identified as non-registered/non-compliant and has recommended blocking 167 URLs/websites.
A high-risk industry for tax evasion
The DGGI's annual report for 2023-24 highlighted online money gaming as a "high-risk" industry. The sector is prone to issues such as tax evasion, money laundering, cyber frauds, juvenile delinquency, and various socio-economic problems. Despite legal clarity since October 1, 2023 that brings gaming entities under the tax net, enforcement remains challenging due to offshore firms' opaque operations and frequent URL/website/app changes to evade taxes.
DGGI proposes multi-pronged approach
The DGGI has proposed a multi-pronged approach to regulate the online gaming sector. This would involve forming an inter-department committee with representatives from CBIC, CBDT, ED, MeITY, MCA, MIB, RBI and Department of Consumer Affairs. The committee's role would be to develop strategies and regulations that ensure compliance, consumer protection and national security in the face of the rapid growth of online gaming platforms.
Online gaming industry's growth and tax implications
The online gaming industry has seen significant growth in recent years, with a compound annual growth rate (CAGR) of 28%, reaching ₹16,428 crore in FY23-24. This surge is attributed to factors like widespread smartphone usage, better internet connectivity, a growing youth population, and the development of local gaming content. In October 2023, the government clarified that online gaming attracts a 28% tax on the total sum deposited by players with the entity.
