Retrospective Tax on Online Gaming

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.

History of the controversial Retrospective tax in India

• 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.

1. 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.
2. 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.