Let us not resurrect the ghost of retro taxation

Source: The post is based on the article “Let us not resurrect the ghost of retro taxation” published in Live Mint on 28^th September 2023.

Syllabus: GS 3 – Indian Economy – Growth & Development, Taxation

Relevance: concerns with high GST on online casinos and gaming platforms.

News: The government’s decision to impose 28% GST on online casinos and gaming platforms is having a devastating impact on the industry.

What are the issues involved?

Many companies are facing tax bills that are much higher than their revenue, and some are facing closure. It is also estimated that the industry could eventually owe around ₹1.5 trillion, including penalties.

The Indian government is demanding a huge amount of GST from online gaming companies, claiming that they have underpaid in the past. However, the companies argue that the government is applying the tax retrospectively, which is unfair.

Further, the government and online gaming industry are in a dispute over GST revenue definitions. Companies claim only their service fees are revenue, while the government insists the total customer wagers count as revenue.

Must Read: Online gaming and its regulations in India – Explained

What lies ahead?

Betting companies may have been interpreting tax rules in their favor. Since they were not licensed to hold public money, they should not have treated all inflows as revenues.

Further, their attempt to distance themselves from gambling and talk about gaming skills was also pointless, since their services are not essential.

However, the companies may have a case if the tax they are being asked to pay is found to be based on the new law passed this year. This is because it is not clear what the original law was, and they are being asked to settle past taxes.

Therefore, the government should be cautious in its arguments, as past incidents like the Vodafone case have shown that prioritizing revenue over principles can harm India’s business-friendly image.