Indian tax authorities have sent notices to fantasy sports and gaming companies for hundreds of millions of dollars in back taxes in a stand-off that is threatening to disrupt the fast-growing industry. Dream11, the country’s largest fantasy sports company backed by Tiger Global, received a tax demand note this month for approximately Rs12bn ($144mn) from 2017 to 2019, according to a court filing challenging the order. Gameskraft, a Bengaluru-based company that offers online rummy, is also battling a tax demand totalling Rs210bn, according to a court filing. I
ndia’s Supreme Court is set to hear the case next month. Other companies have either received tax demands or expect to do so shortly, according to multiple people in the industry. The latest demands are the culmination of a long-running dispute between Indian tax authorities and fantasy sports and gaming companies over the amount they owe.
The companies have won a series of court judgments deeming their services to be “games of skill” rather than gambling, which would subject them to higher taxes. The companies currently pay an 18 per cent tax on the commissions they collect from customers, but tax authorities argue that companies have been underpaying. India’s Goods and Services Tax Council, a federal body that sets the country’s indirect taxes, last month said the companies would have to start paying 28 per cent of the entire stake that a customer wagers as New Delhi cracks down on what they argue amounts to betting.
But in its filing challenging the tax demands in the High Court of Bombay, Dream11 argued that it was a “settled legal position” that its service was not gambling and therefore not subject to higher taxes. Indian authorities are increasingly concerned about the industry as it has grown, with finance minister Nirmala Sitharaman calling the higher tax on gaming companies a “moral question” in August. The fantasy sports dispute comes after New Delhi has fought a number of unsuccessful, high-profile tax battles against companies including Vodafone and Cairn Energy demanding billions of dollars in retrospective levies.
Recommended News in-depthTech start-ups India’s fantasy sports start-ups bat for glory during new cricket season Gaming groups have warned that the higher taxes will kill the fast-growing sector. “I don’t think any industry can survive if these demands go through,” said Roland Landers, chief executive of industry group the All India Gaming Federation. The Indian gaming market has proved popular with foreign venture capitalists. Gaming venture fund Lumikai estimated the total size of the market last year at $2.6bn. “This was a booming sector,” said Meyyappan Nagappan, a partner at law firm Trilegal who has represented gaming companies. “It’s going to shake investor confidence.” Dream11 and Gameskraft declined to comment. India’s tax department did not immediately respond to a request for comment.
Source : Financial Times