Supreme Court to Address Urgent Appeal from Gaming Companies on GST Rates for Online Games

The Supreme Court has consented to hear urgent applications from online gaming firms this Friday, as they pursue a suspension on Goods and Services Tax (GST) obligations and associated actions. There are apprehensions that the conclusive hearing regarding the constitutional legitimacy of the GST applied to these companies could be protracted, possibly leading to detrimental measures such as tax recoveries, bank account freezes, and the issuance of summons, as reported by Business Standard.

In July 2023, during its 50th gathering, the GST Council transitioned online games—both skill-based and chance-based—into the 28 per cent GST category. This newly established tax rate, effective from October 1, 2023, superseded the previous 18 per cent rate applicable to skill-based games. In December 2023, the Rajya Sabha revealed that online gaming businesses had received 71 show-cause notices for GST avoidance amounting to ₹1.12 trillion for the fiscal year 2022-23 and the initial seven months of 2023-24.

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The primary issue in the GST discussion is the classification of online gaming services and establishing the suitable tax rate. The debate focuses on whether the applicable rate should be 18%, generally used for services, or 28%, which is levied on betting, gambling, and analogous activities. This classification dilemma holds substantial financial ramifications for the gaming sector, as a higher tax rate could lead to a significant escalation in their tax liabilities.

According to reports, numerous enterprises are confronting the possibility of insolvency or closure. The Supreme Court has been presented with over 24 petitions disputing the GST Council’s recent resolution to impose a 28% tax on online gaming companies starting October 1, 2023.

Moreover, the assessment of these services for GST purposes is a vital concern. The fundamental inquiry is whether GST should be levied solely on the revenues generated by gaming firms—typically their platform fees or commissions—or on the total amount collected from players. Imposing a higher rate on the entire pooled amount would lead to a considerably heavier tax burden, potentially jeopardizing the viability of these businesses.

“The online gaming companies are optimistic that the court will provide some form of temporary relief to ensure their operations remain smooth and to shield them from undue difficulties while awaiting a final decision,” Abhishek Rastogi, founder of Rastogi Chambers, was cited in the report.