Dream Sports, the parent company of Dream11, has filed a writ petition in the Bombay High Court to contest a show cause notice issued by tax authorities regarding alleged Goods and Services Tax (GST) evasion. The notice alleges that Dream Sports did not pay 28 percent GST on the face value of bets, amounting to a significant tax claim.
According to sources, the tax claims against Dream Sports are much higher than the Rs 21,000 crore claim against Gameskraft, making it one of the largest such claims in the history of indirect taxation in India. The Economic Times estimates the claim at Rs 25,000 crore, while insiders suggest it could be around Rs 40,000 crore.
Dream11, a major player in fantasy sports, reported a net profit of Rs 142 crore on operating revenue of Rs 3,841 crore in the fiscal year 2022.
Earlier this month, it was reported that over 40 skill-gaming companies, including Dream11, were likely to receive show cause notices from the Central Board of Indirect Taxes and Customs for alleged tax evasion. This action followed a Supreme Court decision to stay a Karnataka High Court judgment that quashed a GST notice against Gameskraft for alleged tax evasion of Rs 21,000 crore.
The Supreme Court is scheduled to revisit the matter in the coming weeks. Industry experts and legal professionals have noted that an adverse ruling from the Supreme Court could have severe implications for the skill-based gaming sector, which is already grappling with the GST Council's 28 percent GST regime.
In July 2023, the GST Council imposed a 28 percent GST rate on the full face value of bets, irrespective of whether a game is based on skill or chance. On August 2, it offered partial relief by recommending that GST be levied on deposits instead of every bet placed, in order to avoid double taxation.
Currently, skill gaming platforms pay an 18 percent GST rate on the platform fees, known as Gross Gaming Revenue (GGR).
Revenue Secretary Sanjay Malhotra asserted that GST rates for real-money gaming had always been 28 percent on the full face value, and the amendment merely clarified this position.
The GST Council, led by Finance Minister Nirmala Sitharaman, has urged all states to implement the new tax rates by October 1, 2023. The council has also agreed to review this decision six months after implementation.
On August 11, during the Monsoon Session, Sitharaman introduced bills to amend the Central and Integrated GST laws, which were subsequently passed in both the Lok Sabha and Rajya Sabha. President Droupadi Murmu gave her assent to the amendments on August 19.
Following this, states such as Haryana, Goa, and Arunachal Pradesh have passed similar amendments to their respective state GST laws.
Dream Sports' legal challenge in the Bombay High Court is expected to set a precedent for how the judiciary views the GST implications on online gaming platforms and could have a significant impact on the industry's future operations in India.
