Shares of gaming companies surge as SC halts GST notices
What's the story
The Supreme Court of India has stayed Goods and Services Tax (GST) show cause notices amounting to ₹1.12 lakh crore to online gaming companies.
The ruling sent Delta Corp and Nazara Technologies shares surging by as much as 7% on January 10.
The court has also stayed all related proceedings until the case is finally disposed of, with the final hearing scheduled for March 18.
Stock impact
Market response and future implications
After the Supreme Court's verdict, Delta Corp shares on the National Stock Exchange (NSE) rose by 4%, trading at ₹118.16 each.
However, Nazara Technologies shares slipped slightly by 1.5%, trading at ₹976.4 each on NSE.
The ruling is likely to come as a relief to gaming companies and may stabilize their financial outlook by putting a temporary stop to coercive action by tax authorities against these firms.
GST controversy
Tax dispute background and industry impact
The tax dispute arises from a disagreement over the applicable GST rate for online gaming companies.
The firms contend that a 28% tax should only apply from October 1, 2023, while the government insists this revision only clarified an existing law.
In August 2023, the GST Council amended the law to say all online games involving bets would attract a GST rate of 28% on the full value of bets placed, not just on gross gaming revenue.
Legal challenges
Tax demands and industry response
After the GST Council's decision, online gaming companies were slapped with huge tax demands, which experts caution could cripple the entire industry.
The Directorate General of GST Intelligence (DGGI) slapped tax demands of ₹1.12 lakh crore against 71 online gaming companies, which could go up to ₹2.3 lakh crore with penalties.
Several gaming companies have legally challenged these orders in response to the hefty demands.
Official words
We welcome the relief granted by SC: CEO of EGF
"We welcome the relief granted by the Hon'ble SC. This is a win-win, both for gaming operators who were facing coercive action, and the government whose timelines may now be extended," said Anuraag Saxena, CEO of e-Gaming Federation (EGF).
"We are confident about a fair and progressive resolution to this issue, after which we will see investments, employment, and valuations in the gaming sector grow to its full potential."
Past decisions
Previous court rulings and industry reactions
In May 2023, the Karnataka HC had quashed ₹21,000 crore worth notices to Gameskraft, however, the decision was stayed by the SC in September 2023.
Mahesh M Ojha of Hensex Securities on the recent SC ruling said it is a huge relief for online gaming companies like Delta Corp and Nazara Technologies.
He noted the companies' disagreement with the GoI on when a 28% GST rate should apply.