In July, the Goods and Services Tax Council settled an argument over the GST slab applicable to online casinos and gaming platforms and on what sum this tax should be levied. A rate of 28% on the full sums staked by customers was a blow to the business model of these firms, which wanted only their own fees charged, but it was plainly a pragmatic call. The activity does have the air of a luxury, regardless of skill versus luck distinctions, and business inflows are easy to track for tax assessment. A legislative change was made in August to formalize that decision, following which India’s biggest platforms offering those services have been slapped with tax demands hugely out of proportion to their recorded revenues. The notices that some companies received have eye-popping sums. By one estimate, the industry will eventually be asked to cough up a total of about  ₹1.5 trillion, including penalties for late payment. Where tax bills exceed what the very enterprises are worth, these businesses stare at closure. It is hardly a surprise that legal challenges are being mounted to keep these bills at bay.

The GST demands are so large because they pertain to past liabilities allegedly left unpaid. But if it turns out to be a case of retrospective taxation, then the plaintiffs would have a valid grouse. The earlier dispute was principally over what counts as such a company’s revenue, on which GST must be paid. Bet-taking firms argued this had to be what they kept for their services rendered, a small fraction of the money wagered (and pooled for distribution), while the taxman saw their entire mop-up as the relevant top-line, deeming all of it taxable even if most of it was held in escrow accounts for prize allotments. The tax notices sent assume that the latter was always the case, so errant taxpayers are liable for their erroneous underpayments of the past. As the authorities argue, all that was done this summer was a clarification made of an extant rule. Yet, since it involved an amendment of our GST law by Parliament, harshly assessed gaming firms could contend that it was a rule change that multiplied their burden, and that GST levied on more than just the platform fees must apply only with prospective effect for it to be fair.

Betting platforms may have interpreted what’s taxable to suit their game. As they are not specially licensed custodians of public money—say, like banks—their failure to treat all inflows as revenues in their books was presumptuous, no doubt. This sector’s regulatory framework has only just begun falling in place, and it is unclear why its players expected tax-free access to public funds. Their attempt to escape the tag of ‘gambling’ and assume moral superiority by talking of gaming skills was also pointless, given that their services are far from essential. Still, they would have a case if the burden they’re being asked to bear is found contingent on this year’s legislative move. This means a grey zone will likely be encountered on what the original rule was, which in turn casts our law-making processes in poor light. The government will need to exercise caution in the arguments it makes. Among its business friendly stances was a public rejection of taxes applied in retrospect. The Vodafone spectre of a decade ago took a long time for India to shake off. Willy-nilly, the country’s tax authorities came to be seen as placing revenue greed over principle. This is not a reputation we should risk the return of. The ghost of retro taxes must not get a chance to haunt our economy again.