As we switched from the nineteenth century to the twentieth century, everything in our homes and around us has gone digital which interalia includes our money, our wealth, our vacuum cleaners, our dating, our business and so does our gaming!
With gaming going digital, the challenges w.r.t. taxability of such online gaming are also now digital. Let’s try to understand this with an example,
Mrs. Rakhi logged in on a gaming portal, says Big Boss. Rakhi opened an account on Big Boss’s application. Rakhi added an amount of INR 1000 to her money wallet which she would use in playing skill based online money games. Considering Rakhi’s generosity, the big boss offered her a wallet balance of INR 1200.
Further, as Rakhi kept on using the portal, Big Boss offered various other bonuses such as [1] performance linked bonus, [2] bonus for adding more cash, [3] bonus for winning games, [4] bonuses for inviting friends to use the gaming application, [5] bonus on completing six months on the portal and so on. Rakhi these bonuses continuously for playing skill based online money games.
In the above transaction, Big Boss paid GST on the money included by Rakhi in her money wallet of INR 218.75 [INR 1000*28%/128%]. But Big boss did not think of paying GST on the bonus part. After six months, DGGI approached Big Boss and apprehended that GST would apply to bonuses given by Big Boss to Rakhi.
Now, Big Boss wishes to know whether the bonus is leviable to GST. Let’s try to help Big Boss understand the taxability of the bonus given by them.
Section 9 of the GST Act provides that GST shall be leviable on the supply of goods and services. Section 7 of the GST Act provides that supply has to be made for consideration.
Section 15(1) of the GST Act provides that GST shall be calculated and paid on the amount of price paid and payable. Section 15 also empowers the Government to prescribe valuation for notified supplies.
Consequently, the Government has prescribed Rule 31B in the GST Rules which provides that GST on online money gaming should be payable to the total amount paid or payable to or deposited with the supplier, by way of money or money’s worth, by or on behalf of the gamer.
In light of the above law and rules, it appears that bonuses given by gaming companies to the gamers may not be exigible for GST for the following reasons;
Does not qualify as a supply for consideration - After October 2023, GST law has assumed that every time a certain sum of money is deposited in the money wallet of the gaming companies, there is a supply of actionable claims in the form of online money gaming made for consideration.
However, when the bonus is used for playing skill based online money games, there is no consideration present in the transaction since the bonus does not represent any amount payable by the gamers.
Consequently, since supply without consideration is not taxable between unrelated parties, a levy under Section 9 of the GST Act does not exist. Thus, it could be construed that GST should not be leviable on such bonuses.
Levy of GST on the bonus would be contrary to the essence of Section 15 – The valuation under Section 15 of the GST Act is incorporated with the spirit that the price paid or payable becomes the value for calculating GST.
However, in the case of games played using the bonus, there is no price paid or payable either in monetary or non-monetary terms by the gamers hence, the levy of GST on the bonus is against the valuation spirit of Section 15 of the GST Act.
Moreover, it is a settled principle that once the valuation mechanism fails, the levy also fails. As has been upheld by the Hon’ble Supreme Court in the case of BC Srinivasa Shetty. Thus, GST cannot be levied on bonuses on this ground as well.
Is not includible in valuation as per Rule 31B of the GST Rules: - Per Rule 31B, the value of supply would include [1] the total amount paid or payable to or deposited with the supplier, [2] by way of money or money’s worth, [3] by or on behalf of the gamer.
Accordingly, an analysis of the inclusion of a bonus in the value of supply apropos the above conditions is as follows;
- Is not deposited with the supplier: - Per Rule 31B of the GST Rules, the value of supply is something that is paid/payable or deposited with the supplier. Thus, the value of supply necessitates the presence of two persons, one being the supplier and the other being the recipient. However, when the bonus is paid, nothing is received by the supplier from the recipient. Hence, bonuses cannot be made leviable to GST.
- Does not qualify paid/payable: - In the context of the Customs Act, the larger bench of the Tribunal in the case of Jet Airways held that the words "amount paid or payable" are interpreted to mean that an amount should actually be agreed to be paid and a liability should be created for such payment.
Applying the above principle in this case, it could be construed that since the gamer is not paying any consideration for games played using the bonus, no amount is being paid or payable. Thus, GST shall not be leviable on the bonuses.
- Does not qualify as money or money’s worth: - Bonus provided by one gaming platform is for the limited usage on such a platform only and which also is conditional. Thus, bonuses may not be considered as money or money’s worth in a general parlance.
- Is not paid by the player: - Since the bonus does not represent consideration given by the player, it does not become the value of supply.
- Is not paid on behalf of the player: - The words by or “on behalf of the player” substantiate either [1] an agency or [2] something done for the benefit of the other person.
In this case, the supplier does not act as an agent of the player. Further, the bonus is given primarily for the supplier’s benefit since it promotes their business. Accordingly, the bonus is not being paid on behalf of the payer.
Nevertheless, "on behalf of" assumes the presence of three parties viz. [1] payer, [2] payee, and the [2] the beneficiary whereas in this case, only two parties are involved viz. [1] the gaming company and [2] the gamer. Hence, the bonus is not an amount paid by or on behalf of the player.
Accordingly, since the above conditions are not satisfied, the bonus may not be liable to be added to the value of supply under Rule 31B of the GST Rules.
Based on the above discussion, it becomes succinctly clear that GST does not apply to the bonuses being given by the skill based online money gaming companies.
However, DGGI being DGGI, gaming companies are going to hear good music concerning application of GST on bonuses being paid by gaming companies to the gamers.
To conclude, just as we have embraced digital vacuums, online dating, robot waiters and smart fridges, the mindset of Administrators needs an upgrade w.r.t. challenges being faced by online gaming industry. Until the Government introduces the right clarifications, we would ensure your digital coins don’t disappear like loot in a glitch by keeping you posted, digitally!
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