Indian tax authorities seek $150 Million from Dream11, Tiger Global’s gaming venture

India’s tax authorities have taken action against Dream11, a gaming company backed by Tiger Global, demanding approximately US$150 million in unpaid taxes for the period between 2017 and 2019, according to legal documents. This tax dispute revolves around the appropriate tax rates applicable to gaming platforms, particularly those offering fantasy cricket games, which have gained immense popularity.

Higher tax on gaming revenue

Dream11’s stance is that it should be subject to taxation based on the fees it charges its customers. Conversely, Indian tax authorities are insisting on a higher 28 percent tax on the total gaming revenue generated from players, as stated in court documents.

In a move that set the clock ticking, tax authorities issued notices on 12 September, giving Dream11 a 30-day window to provide a defense against a claimed shortfall of 2.1 billion rupees (US$26.07 million) for the fiscal year 2017-18 and a hefty 10 billion rupees (US$120.85 million) for the subsequent year of 2018-19. These figures include accrued interest and penalties.

Dream11, for its part, has chosen to remain tight-lipped on the matter, declining to comment. Meanwhile, the Indian tax authorities have not yet responded to inquiries seeking their input.

Mumbai High Court lawsuit

To challenge the tax notices, Dream11 has filed a lawsuit in Mumbai’s High Court, as confirmed in some court documents. The case is expected to make its way through the legal process in the coming days.

Dream11, headquartered in Mumbai and founded in 2008, enjoys significant backing from the U.S. investment fund Tiger Global.

Additionally, the tax authorities are conducting a broader investigation into Dream11’s tax payments, extending their scrutiny to cover the period until March 2023, as disclosed in the company’s court filing.

Betting and gambling vs ‘skill-based games’

According to court documents, Indian tax inspectors contend that Dream11’s services fall within the domain of betting, gambling and wagering. In contrast, Dream11 argues that its gaming platform is rooted in skill-based games and should thus be subject to a lower tax rate, specifically on its earnings known as platform fees, rather than the entire prize pool.

Potential of Indian gaming market

India’s gaming industry boasts a significant valuation of $930 million, securing its position as the world’s top-ranked market. With over 560 million registered internet users, India stands as the second-largest global consumer of internet services. The government projects that the online gaming sector will reach a substantial $1.9 billion by the end of 2024, reflecting a remarkable 28 percent growth over the past two years. These statistics underline the immense potential of the Indian gaming market, prompting the need for clear and tailored regulations to define iGaming (betting and gambling) and skill-based games in this rapidly evolving industry.

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