Internet and Online Gaming: Navigating Tax Compliance Challenges

Internet Gaming Tax Compliance Challenges

The Directorate General of Goods and Services Tax Intelligence (DGGI) has proposed establishing an inter-departmental committee. This committee will consist of representatives from various entities, including the Enforcement Directorate and the Reserve Bank of India, to address the tax issues affecting the online gaming industry.

Key Findings and Recommendations

• The Central Board of Indirect Taxes and Customs (CBIC) recently flagged 118 online gaming entities.
• These entities face tax demands totaling INR 1,10,531.91 Cr for non-compliance with the mandated GST rate of 28%.
• In addition, 658 offshore entities were identified as non-registered or non-compliant.
• Recommendations to block 167 URLs aim to mitigate illegal activities related to online gaming.

The DGGI's annual report for 2023-24 classifies the online gaming industry as high-risk. connections to tax evasion and juvenile delinquency.

Many platforms operate from offshore tax havens, complicating efforts to trace tax evasion activities. The DGGI's proposal emphasizes the importance of creating awareness and promoting responsible gaming practices to ensure compliance with regulations.

Future Implications

This committee's formation comes in response to the significant revenue challenges faced by over 50% of online gaming companies, correlated with the implementation of a 28% GST tax. This issue highlights the necessity for strategic measures to maintain the industry's exponential growth, projected at a CAGR of 28%, reaching a valuation of INR 16.4 Cr for FY23-24.