Delta Corp Faces Mounting GST Challenges, Another GST Notice Of INR 6,384 Crore; Total Tax Shortfall To INR 23,206 Crore
Delta Corp is currently grappling with a significant tax predicament; recently, the company received another GST notice, adding INR 6,384 crore to its existing tax shortfall, which now stands at a staggering INR 23,206 crore. This situation has sent shockwaves through the industry as Delta Corp contends with multiple tax notices, industry-wide concerns, and the potential impact on its market standing and operations.
On October 14, Delta Corp, a prominent casino chain, disclosed to the stock exchanges that its subsidiary, Deltatech Gaming (formerly Gaussian Networks), has been served with a notice demanding a shortfall tax payment of INR 6,384 crore.
In response to the GST notice, Delta Corp stated in its filing that Deltatech Gaming Limited has been instructed to settle the alleged tax deficit, inclusive of interest and penalties and failure to comply may lead to the issuance of a show cause notice under Section 74(1) of the CGST Act, 2017.
The recent tax notice adds to Delta Corp’s cumulative tax shortfall liability, which now amounts to INR 23,206 crore; to put this into perspective, Delta Corp’s market capitalization is currently INR 3,749 crore.
Earlier, on September 22, the company had received a direct tax notice of INR 11,140 crore; furthermore, another notice, totalling INR 5,682 crore, was issued against three of its subsidiaries: Casino Deltin Denzong, Highstreet Cruises, and Delta Pleasure Cruises.
Delta Corp explains that the amounts specified in all the notices are based on the gross bet value of games played. The demand for GST on the gross bet value, as opposed to the gross rake amount, has been a contentious industry issue, and various representations have been made to the government at the industry level regarding this matter.
The GST Council’s decision to impose a 28 per cent tax on the full face value of chips used for gambling has caused distress among casinos and online gaming companies, meaning players effectively receive only INR 72 to wager for every INR 100 worth of chips purchased. Previously, GST was charged solely on net house winnings.
In response to these developments, Delta Corp had earlier announced that it had put its initial public offering (IPO) plan for Deltatech Gaming on hold.
In the quarter ending in September, the company reported a 1.6 per cent year-on-year increase in consolidated net profit, reaching INR 69.4 crore. The company’s revenue saw a marginal rise, going from INR 270 crore in Q2 FY23 to INR 270.6 crore in Q2 FY24.
However, the September 22 tax notice amounted to INR 16,822 crore, leading to a significant drop in the company’s stock price, which reached a 52-week low of INR 140.35 on September 25, representing a 19 per cent decline from the previous closing price.
Adding to the company’s challenges, its chief financial officer resigned, and the announcement to levy a 28 per cent GST on the gross bet value for casinos was made three months prior to these events.
Despite these challenges, Delta Corp is in a relatively strong financial position, being debt-free; however, the situation comes at a time when the company has faced capacity constraints due to high entry barriers and strict gambling regulations.
The company has expressed its intention to challenge the tax demands legally, with the support of Zia Mody, a prominent figure in the legal field and the co-founder of AZB & Partners, one of India’s leading law firms; the legal backing lends strength to Delta Corp’s position in this matter.
Looking ahead, analysts believe that Delta Corp’s long-term prospects remain promising, given its strong presence in the Indian casino industry, a well-established brand, and a loyal customer base and investors who have faith in the company’s ability to navigate these challenges may view the current stock price dip as a potential buying opportunity.
Several institutional investors and funds continue to hold or increase their stakes in Delta Corp, stressing the belief that despite the setbacks, the allure of gambling and the potential for growth in the industry remain strong.
Moreover, Delta Corp’s expansion in Goa and the pending Daman license hold significant promise for the company’s future, and investors are optimistic about its prospects’ however, the recent tax notices have undoubtedly added a layer of uncertainty for investors in the stock.
The Last Bit,
The mounting GST challenges faced by Delta Corp have raised serious concerns within the industry and among investors; with an ever-increasing tax liability now at INR 23,206 crore, the company has its task cut out.
Despite this, Delta Corp’s strong brand, loyal customer base, and potential for future growth offer a glimmer of hope; also, the backing of prominent legal figures and the company’s decision to pursue legal remedies further strengthen its position.
As the industry grapples with the impact of GST regulations and a change in policy, investors are closely watching to see how Delta Corp manages its tax challenges and steers towards a more stable and promising future.
