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Tax heat on offshore online gaming companies

April 11, 2023

Synopsis
The Directorate General of GST Intelligence has discovered 38 online gambling and betting portals that are based in Cyprus, Mauritius, and the Cayman Islands, and have not paid GST. The crackdown has found that some entities pose as fantasy gaming platforms and are being used to launder money abroad by high-net-worth individuals, celebrities, and social media influencers. The tax department estimates that ₹12,000 crore tax evasion took place between April 2019 and November 2022.

The Directorate General of GST Intelligence (DGGI) has cracked down on Cyprus, Mauritius and Cayman Islands-based entities offering online gambling and betting, some of them said to be posing as fantasy game platforms.

These companies are not registered in India and, initial scrutiny suggests, were helping many high-net-worth individuals (HNIs), including some celebrities, and social media influencers, launder money abroad, said people aware of the development.

Tax officials have identified 38 such portals offering services in India that have not paid any goods and services tax (GST). Initial estimates put the tax evasion at ₹12,000 crore from April 2019 to November 2022.

The tax department has issued notices to these companies and the investigation is ongoing.

Income Tax department also looking into matter

"While some of the companies were posing as platforms for fantasy games, they were meant purely for betting and gambling and users included HNIs, social media influencers and the amount was being deposited to their foreign account for which no income tax has been paid," an official told ET. "We have shared the data with other agencies also as payments were being made by using international cards and cryptocurrencies which made it difficult for us to track all the users.

"These companies will have to pay the outstanding tax and get GST registration, otherwise the tax department will write to the ministry of electronics & information technology (MeitY) to block their gaming sites.

The income tax department is separately looking into the platforms as well as major players on them for possible tax evasion.

The online gaming market has been an area of concern for both policymakers and the domestic industry, which feels that these offshore-based entities are distorting the market.

"The biggest challenge is from the offshore online gaming companies," said Dibyojyoti Mainak, head, legal and policy, Mobile Premier League (MPL). "While the domestic industry is largely self-regulated, it still loses a substantial amount of revenue to these overseas players." He said the offshore companies annually make about $15-20 billion from their Indian customers.

Last month, the finance ministry told Parliament that the Central Board of Indirect Taxes and Customs has initiated investigations against some gaming companies located in India as well as overseas for estimated GST evasion of ₹22,936 crore.

[The Economic Times]

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