DGGI cracks down on online gaming industry, shut downs 167 websites over ₹82,000 crore tax violations

The DGGI has flagged online gaming as a high-risk sector, recommending action against non-compliant platforms and the blocking of 167 websites amid rising tax evasion concerns.

DGGI pushes for tighter regulation of online gaming, recommending blocking 167 websites for tax non-compliance. (Unsplash)

The Directorate General of GST Intelligence (DGGI) has called for increased monitoring of online gaming platforms, highlighting concerns related to tax evasion and potential money laundering. The move includes a recommendation to establish an inter-departmental committee involving agencies such as the Enforcement Directorate (ED), the Reserve Bank of India (RBI), and other regulatory bodies to address these risks.

Action Taken by CBIC and Ongoing Investigations

The DGGI, in its latest annual report, flagged online gaming as a "high-risk" industry, particularly concerning tax evasion, cyber fraud, and money laundering. The report identified online money gaming as a sector facing multiple socio-economic challenges and noted the need for stringent regulatory oversight. 

The Central Board of Indirect Taxes and Customs (CBIC), which oversees GST enforcement, has already initiated action against domestic gaming companies. Show Cause Notices have been issued to 34 entities, demanding over Rs. 1,10,531 crore in unpaid taxes. A total of 118 domestic gaming companies are under investigation for failing to comply with the mandated 28 percent GST on the total deposits collected from players.

International Scrutiny

In addition to domestic investigations, the DGGI report identified 658 offshore gaming platforms operating without proper registration. These entities are being scrutinised for their tax practices, with authorities recommending the blocking of 167 websites linked to non-compliant gaming activities. The report also highlighted that many of these firms are located in offshore tax havens, making it difficult to identify their ownership and enforce tax laws.

The DGGI has recommended a multi-pronged strategy, involving a range of government agencies and industry bodies, to combat the proliferation of non-compliant online gaming platforms. This approach aims to ensure regulatory compliance, protect consumers, and safeguard national security. 

Legal Challenges and Future Regulation

The government's clarification in October 2023 reiterated that online gaming platforms are subject to a 28 percent GST on the total deposits. The fast-growing online gaming industry, driven by smartphone adoption and improved internet access, reached a value of Rs. 16,428 crore in FY23-24. 

Several gaming companies have challenged the Show Cause Notices in court, arguing that games of skill like poker and rummy should not be classified as gambling. The case is pending before the Supreme Court, and its outcome will influence the regulation of online gaming.