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Gaming Industry Under Tax Scanner: Enforcement Directorate Seizes Deposits Worth ₹68 Crores From Garena’s Payment Facilitator, Coda Payments

Gaming Industry Under Tax Scanner
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  • Namita Ghosh September 29, 2022
  • 4 Minutes Read

Acting on multiple complaints, the Enforcement Directorate raided three India offices of the Singapore-based Coda Payments India Pvt Ltd (CPIPL) this week. The company runs a payment gateway for the gaming company Garena and allegedly duped Crores from unsuspecting users, primarily children, through unauthorized payments.

The ED has frozen deposits worth ₹68 Crores from the company’s accounts and is investigating other associated gaming companies. The move comes as part of the federal agency’s money laundering investigation.

Post the raids, the ED, in its report, stated – “The company has collected ₹2,850 Crores till date, out of which ₹2,265 Crores was remitted outside India after retaining a certain percentage of revenue for the payment of taxes and nominal profits here.”

The report further explains, “It is alleged that Coda Payments India Pvt. Ltd., which facilitates and collects payments from end users (mostly unsuspecting children) for games in the name of monetizing and generating revenue for web/game publishers, was resorting to unauthorized deductions from the end-users of these games in the name of selling digital tokens which were used by them (end users) to enhance their playing experience.”

Importantly, Coda Payments is an agent of Garena, publishers of popular games like Free Fire, Call of Duty Mobile, Teen Patti, etc.

The transactions were structured such that once the gaming users, most of them children, made payments to buy digital tokens to use while playing, the company would not take them through the entire authentication process. It would simply throw up notification popups on the screens before making deductions from the player`s saved bank accounts/ payment cards.

The ED report underlines the fraud involved in the process. “As the children are not aware of these technical terms, they just click on the notification routinely and end up giving the authorization to make all future payments without any further authentication.”

The tax authorities are steadily increasing their scrutiny of the gaming industry. In a new development, the Directorate General of GST Intelligence (DGGI) issued notices to seven gaming companies and several top gamers and is estimated to have claimed as much as ₹28,000 Crores. Only last week, the DGGI issued a record ₹21,000 Crores show cause notice on Bengaluru-based online gaming company, Gameskraft Technology Private Ltd.

 

Gaming Companies Under Tax Spanner

India’s top enforcement and tax agencies seem to have fixed their eyes on the country’s fast-growing gaming sector! The vigilance is not limited to just the gaming companies but also includes professional gamers who are being targeted for possible tax evasion and alleged irregularities.

Last month, we reported that the Central Board of Direct Taxes had urged the winners of online games to file updated income tax returns (ITR-U) for their last two-years income and pay the applicable taxes.

Recently, the Directorate General of GST Intelligence (DGGI) has begun issuing notices to all gaming companies in India. The DGGI has charged the Bengaluru-based Gameskraft Technology Pvt. Ltd (GTPL) of not paying GST to the tune of ₹21,000 Crores between 2017 to June 30, 2022.

On September 26, Gameskraft (the parent company of Pocket52) filed a plea in the Karnataka High Court against the notice. The court has earmarked October 11 for the next hearing of the appeal.

While the Gameskraft case is subjudice, the DGGI has also issued notices to seven gaming companies and several top gamers, making an estimated tax claim of ₹28,000 Crores. Nitin Gupta, chairman of the Central Board of Direct Taxes (CBDT), told Economic Times, “We have the data and are in the process of issuing notices to some players and companies.”

 

Other Developments

The issue has wider ramifications and comes at a time when the Group of Ministers (GoM) has sought more time from the Central GST Council to take legal opinion before recommending the GST slab and valuation method for online gaming, horse racing, and casinos.

That said, India’s gaming sector is functioning in an unregulated zone. The recent raids by the ED on a Singapore-based company say how vulnerable Indian players are to being cheated of money by international gaming set-ups or payment facilitators.

While the union government has set up an inter-ministerial panel to look into regulating the online gaming sector, there’s no final word or a deadline in sight.

States have made their own interpretation, and the recent gaming bans by the governments of Karnataka and Tamil Nadu are a case in point. Respective high courts quashed both these legislations. The issue is now being fought between them and the industry stakeholders in the Supreme Court.

Earlier this month, the Apex Court issued a notice to gaming sector stakeholders, asking for their response to a petition filed by the Tamil Nadu government. The petition challenges the Madras High Court’s judgment that struck down the state’s previous attempt at banning online games like rummy and poker played in cyberspace with stakes.

Not bogged down by its failure to ban games in the first attempt, the Tamil Nadu cabinet approved an ordinance to ban online gaming in the state on Monday. All these developments raise question marks about the growth prospects of the gaming industry in the country.

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