Retrospective Tax on Online Gaming

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Retrospective Tax

Context (ET): Online gaming companies currently pay an 18% tax on the commissions they collect from customers.
In July 2023, the GST Council decided to levy 28% GST on the full value of online gaming.

This rate was made applicable retrospectively.
As a result of the retrospective tax, online gaming companies need to pay taxes for past transactions.
Retrospective tax is a tax charged for transactions in the past.
It simply means imposing an additional tax charge from a specified date in the past.
Retrospective taxation allows a nation to implement a rule to impose a tax on certain products, goods, or services from a time before the date on which the law is passed.

The GoI amended the Income Tax Act 1961 and introduced the retrospective tax provision in 2012.
It allowed the government to ask companies to pay taxes on mergers and acquisitions (M&As) before that date.

In 2007, Vodafone acquired Hutch for $11 billion. In 2012, the GoI demanded 7990 crores in capital gains retrospectively.
- The company took the matter to the SC, which eventually favoured Vodafone.
- Vodafone filed lawsuits against the retrospective tax in international courts, which India lost.
In 2006, Cairn Energy made an internal reorganisation.
- In March 2015, the GoI asked the company to pay Rs 10,247 crore in taxes on alleged capital gains made by the company in the internal reorganisation.
- Cairn Energy initiated an international arbitration to challenge retrospective taxation.
- The international arbitration tribunal ruled in favour of Cairn and asked GoI to pay Rs 8,000 crore as damages to Cairn.

As per the new Govt. Tax (TDS) law, effective from April 1, 2023, TDS is being deducted at 30% of the taxable amount (Net winning) at the time of withdrawal.
GST Council imposed a 28% GST on funds that online gaming companies collect from their customers. It clarified that 28% GST would apply to the actual cash or equivalent deposits made by players, not to the winning amounts they redeployed.
- If a bet is placed for, say, Rs. 1,000, and the player wins Rs 300, and if the player again places a bet of Rs 1,300, then GST will be levied only on the initial deposit of Rs. 1000 and not on the winning amount of Rs 300, which is redeployed.
- Until now, the companies paid a small tax on the fees they charged. The change announced will impose a 28% tax on the amount collected from players in every game.