Dream11 has argued that it should pay taxes only on the fees it charges its customers.
The Indian tax department has demanded approximately $150 million in taxes from Dream11, a popular online fantasy sports company, for alleged underpayment of taxes during the years 2017 to 2019. This demand comes amidst a broader push by Indian authorities to regulate and tax the burgeoning online gaming industry.
Dream11 and the Indian government are entangled in a disagreement about whether such platforms should pay taxes on the fees they charge users or on the total gaming revenue. Dream11 argued that it should pay taxes only on the fees it charges its customers. However, Indian tax authorities have insisted on a higher 28% tax on the total gaming revenue generated by the company.
Founded in 2008 by Harsh Jain and Bhavit Sheth, Dream11, with a user base of millions, is one of the prominent players in India’s fantasy gaming sector. The platform allows users to participate in fantasy sports contests for various real-life sports such as cricket, football, basketball, and more. The company has received significant investments, including backing from Tiger Global Management, making it one of the well-funded startups in the online gaming sector.
In a blow to the online gaming sector, the Indian government in July decided to levy a 28% tax on the full-face value of bets placed on online gaming, casinos, and horse racing. However, in the GST Council on August 2, the government decided to impose a tax on the online gaming companies on the total funds deposited and not each bet, according to another Reuters report. Finance Minister Nirmala Sitharaman is eyeing implementing the decision from October 1.
For the government, the move is intended to align the tax rate more closely with other sectors and to generate additional revenue. But for the gaming companies, the decision could have significant repercussions as it puts an additional tax burden on them. According to reports, the federal government expects to earn an extra Rs 20,000 crore annually from levying a 28% tax on online gaming platforms, a significant increase from the previous revenue of Rs 1,700 crore collected from the industry.
Several gaming companies and venture capitalists at the time had written to the Indian government asking it to reconsider its decision as the move could affect their cash flows and hinder their ability to invest in new games and business expansion. This tax burden is expected to limit the industry’s growth potential and impact the feasibility of new projects.