Delta Corp Soars as SC to Hear Gaming GST Plea on Jan 10

Delta Corp shares saw a nearly 5% surge on January 8 after the Supreme Court agreed to hear the online gaming industry's plea against the Goods and Services Tax (GST) show-cause notices on January 10. By 12 PM, Delta Corp’s stock had climbed 6%, trading at ₹116.43 per share.

The hearing comes at a crucial time for the online gaming sector, which has been grappling with regulatory uncertainty and significant tax burdens. According to a report by CNBC-TV18, the industry is requesting a stay on the GST show-cause notices, fearing potential coercive actions by tax authorities. The notices have sparked widespread concerns within the industry, as stakeholders argue that the issue has remained unresolved for several years, hampering business operations and growth prospects.

The government had issued 71 show-cause notices to online gaming companies in the financial year 2022-23 and the first seven months of 2023-24, amounting to ₹1.12 lakh crore in alleged GST evasion. The primary point of contention is the GST rate applicable to online gaming platforms. Until October 1, 2023, many companies had been paying 18% GST on their gross gaming revenue (GGR). However, the government asserts that the applicable rate is 28% on the total value of bets placed, even for periods before the policy change in October.

While gaming companies argue that the 28% rate only came into effect after the October 1 revision, the government claims that this revision merely clarified the scope of an existing law rather than introducing a new one. This position has led to massive tax demands, which industry experts warn could stifle innovation and drive several companies out of the market.

In August 2023, the GST Council amended the law to state that all online games involving monetary bets, regardless of whether they require skill or chance, would attract a 28% GST on the total bet value. The industry had hoped for a taxation framework that differentiated between games of skill and games of chance, as is done in many international markets. However, the council’s decision effectively placed all such games under the same tax slab, leading to a sharp increase in tax liabilities.

Industry experts believe that the 28% GST on the full value of bets could disrupt the online gaming ecosystem, particularly for small and medium-sized firms that operate on slim margins. Some companies have voiced concerns about the retroactive nature of the demands, even though the government insists that its stance is not retroactive but rather a clarification of the law.

The upcoming Supreme Court hearing is seen as pivotal for the industry. A favorable outcome for online gaming firms could provide much-needed regulatory relief and help stabilize investor confidence in gaming stocks. Conversely, an unfavorable ruling could set a precedent that may lead to further tax disputes and enforcement actions, impacting employment, foreign investment, and overall market growth in the sector.

Online gaming is a fast-growing industry in India, contributing significantly to employment and revenue. However, regulatory uncertainty has long plagued the sector, with operators calling for a fair and consistent tax regime that supports innovation while adhering to compliance. The government’s position emphasizes the need for tax collection, but companies argue that an overly burdensome tax policy could stifle an industry that has the potential to contribute significantly to the digital economy.

The next steps in the legal battle are expected to set the tone for the industry's future in India. Investors, stakeholders, and policymakers are keenly watching the Supreme Court proceedings, as the outcome could have lasting ramifications not just for online gaming but for other digital and entertainment sectors facing similar tax complexities.