LEVY OF GST ON ONLINE GAMING – LAW DECODED

[Dr. Sanjiv Agarwal]

Amendment Bills / Acts

Finance Minister has introduced CGST Act (Amendment) Bill, 2023 and IGST Act (Amendment) Bill, 2023 in the Parliament on 11^th August, 2023. Both the Bills have been passed by the Lok Sabha on same day and later by Rajya Sabha. These have since been enacted as Act Nos. 30 and 31 on 18.08.2023. This will come into effect from a notified date. It provides for defining online gaming, registration and change in scope of supply (Schedule III) etc. Similar changes are stipulated in IGST Act, 2017.

Amendments made by CGST (Amendment) Act, 2023

Following are the important amendments being made the CGST Act, 2017

New definitions

Online gaming [Section 2 (80A)]

"Online gaming" means offering of a game on the internet or an electronic network and includes online money gaming.

Accordingly, online gaming will refer to offering of a game online, i.e., such online game shall be offered on :

• Internet, or
• any electronic network

It would also include ‘online money gaming’ which has been also now defined under section 2(80B) of CGST Act, 2017.

Internet

Internet has not been defined in GST law but internet is a worldwide matrix of connecting computers started as a government defence project in the late 1960s, and has since become a mixture of government, educational, and commercial networks. Although there is no Internet 'ownership', a group called the Internet Society (ISOC) serves as a volunteer governing body. Standards and infrastructure are decided via a group of volunteers known as the Internet Architecture Board (IAB), while the Internet Engineering Task Force (IETF) tackles technical issues.

Internet Service Provider (ISP) is anyone providing connection to the Internet as a service, ranging from small local providers to the better-known national lSPs such as VSNL and SIFY It is a company, usually a local one that provides connections to the Internet for a monthly or hourly fee. Services can vary from providing a connection to providing full service, support, and on-site customer Internet servers. Many ISPs will build a home page, convert files and graphics, forward leads, and update information for one-time creation and monthly maintenance fees. These are considered different to the national online services such as VSNL, Satyam, HCL infinity, Caltiger. Although these services also offer access to the Internet, they provide a vast array of original content as well.

The Internet is called a network of networks because it is a global network of computers that are linked together by cables and telephone lines making communication possible among them. It can be defined as a global network over a million smaller heterogeneous computer networks.

Electronic Network

Electronic network  (electronics) is a system of interconnected electronic components or circuits network. Computer network  (computer science) is a network of computers.  In electrical engineering and electronics, a network is a collection of interconnected components. Network analysis is the process of finding the voltages across, and the currents through, all network components.

Online money gaming [section 2(80B)]

"Online money gaming" means online gaming in which players pay or deposit money or money's worth, including virtual digital assets, in the expectation of winning money or money's worth, including virtual digital assets, in any event including game, scheme, competition or any other activity or process, whether or not its outcome or performance is based on skill, chance or both and whether the same is permissible or otherwise under any other law for the time being in force.

Thus, online money gaming has to be a ‘online gaming’ first as defined in section 2(80A) of the CGST Act, 2017. Since this definition includes ‘online money gaming’, it has been specified in section 2(80B). To qualify as ‘online money gaming’, it must have the following ingredients –

• It is an online gaming
• Players to pay or deposit money
• Money could be in money form or money’s worth or virtual digital assets
• There should be an expectation of winning in any such online event
• Such winning could be of money, money’s worth or virtual digital asset
• Events may be any game, scheme, competition or other activity or process.
• Such event’s outcome or performance may or may not be based on skill or chance or both.
• Such event may or may not be permissible under any other law for the time being in force.

It may be noted that it will cover both-games of chance and games of skills or a combination of two irrespective of whether same is permissible or not under any law, viz, Indian laws. Also, actual winning is not stipulated but what is more important is that event is undertaken in expectation of a win, i.e., win of money or money’s worth or virtual digital asset.

Money [Section 2(75)]

Money is defined as follows:

The word ‘money’ has been defined in sec 2(75) of the GST Act to mean:

• Indian legal tender or any other foreign currency
• Promissory note, bill of exchange, letter of credit,
• Cheque, draft, payorder, traveler cheque, money order, postal or electronic remittance or any such similar instrument recognized by RBI.

when used as consideration to settle an obligation or exchange with Indian legal tender of another denomination, but shall not include any currency that is held for its numismatic value.

Virtual digital asset [Section 2 (117A)]

As per section 2(117A) CGST Act, 2017, "virtual digital asset" shall have the same meaning as assigned to it in clause (47A) of section 2 of the Income-tax Act, 1961.

In terms of Income Tax Act 1961, section 2(47A), "virtual digital asset" means-

(a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;

(b) a non-fungible token or any other token of similar nature, by whatever name called;

(c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify:

Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein.

The scope of virtual digital asset is very wide and it may be generated through cryptographic means or otherwise. Non fungible token are digital assets as Government may notify. The terms-currency, foreign currency and Indian currency are defined in Foreign Exchange Management Act, 1999.  

Specified Actionable Claim [Section 2(102A)]

"Specified actionable claim" means the actionable claim involved in or by way of:

1. betting;
2. casinos;
3. gambling;
4. horse racing;
5. lottery; or
6. online money gaming.

While actionable claim is defined in section 2(1) of CGST Act, 2017 for the purpose of taxation of online gaming, a new definition of ‘specified actionable claim’ has been provided. It will include only the aforesaid events / games.

Actionable claims- Meaning / scope

Presently actionable claim are defined under section 2(1) of the CGST Act, 2017. Accordingly, 'actionable claim' would mean a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.

The key elements for any claim to be called 'Actionable Claim' are :

1. It is any type of debt other than a debt secured by mortgage of immovable property or by hypothecation or pledge.
2. Any beneficial interest in movable property not in possession of claimant, either actual or constructive.
3. Civil courts should recognize such claim as worthy of affording grounds for relief.
4. Such claims or interest could be either existing, accruing, conditional or contingent.
5. Actionable claims can be assigned.
6. Actionable claims can be enforced in a court of law.

This definition shall not apply to online gaming and new definition shall be applicable.

Supplier [Section 2(105)]

Supplier is presently defined as follows:

 “Supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied.

The Amendment Act has inserted the following proviso to the definition:

"Provided that a person who organizes or arranges, directly or indirectly, supply of specified actionable claims, including a person who owns, operates or manages digital or electronic platform for such supply, shall be deemed to be a supplier of such actionable claims, whether such actionable claims are supplied by him or through him and whether consideration in money or money's worth, including virtual digital assets, for supply of such actionable claims is paid or conveyed to him or through him or placed at his disposal in any manner, and all the provisions of this Act shall apply to such supplier of specified actionable claims, as if he is the supplier liable to pay the tax in relation to the supply of such actionable claims".

This enable an organizer or arranger of supply of specified actionable claim to be deemed as a supplier. Also, any person who owns, operates or manages digital or electronic platform for supply of such claims shall also be deemed to be supplier. The proviso expands the scope of ‘supplier’ as defined in Section 2(105). The amendment is subject to varied interpretation and may be prone to disputes and litigation.

Registration in certain cases [Section 24]

Section 24 of CGST Act, 2017 provide for compulsory registration in certain cases. For online gaming suppliers, it has been amended so as to provide that persons supplying online money gaming from a place outside India to a person in India will compulsorily be required to obtain GST registration. A new clause (xia) has been inserted as follows:

“Every person supplying online money gaming from a place outside India to a person in India; and".

For the first time, it has been made obligatory for a foreign supplier to be registered under GST law. Otherwise, in such cases, GST is payable by recipient in India under reverse charge mechanism. This has been provided for to ensure that all such supplies are subjected to GST and there is no revenue leakage on account of unregistered suppliers.

Scope of Supply [Schedule III to CGST Act)

Schedule III specifies activities or transactions which shall be treated neither as a supply of goods nor as a supply of services. Clause (6) mentions one of such activities as ‘actionable claims, other than lottery, betting and gambling’. Clause (6) has now been amended to substitute clause (6) by the words ‘specified actionable claims’. This has since been defined in section 2(102A) of the CGST Act, 2017. Thus, the amendment expands the scope of taxable actionable claims by inclusion of online gaming in the taxable actionable claims.

Schedule III of the CGST Act, 2017 presently provides for that actionable claims other than lottery, betting and gambling shall be considered as activities or transactions which shall be treated neither as supply of goods nor as supply of services. It implies that once the GST laws are amended and notified, following activities can be taxed for the purpose of levy of GST:

1. Lottery
2. Betting
3. Gambling
4. Online games of chance or skill
5. Horse racing
6. Casinos

First three in the above list are already covered and remaining three are likely to be notified for taxation w.e.f. 01.10.2023.

Transitory Law

A transitory provision has also been made by the CGST (Amendment) Act, 2023 which provides that :

“The amendments made under this Act shall be without prejudice to provisions of any other law for the time being in force, providing for prohibiting, restricting or regulating betting, casino, gambling, horse racing, lottery or online gaming.”

It implies that the amendment provisions would prevail despite there being provisions in any other law which prohibit, restrict or regulate specified actionable claims of any kind.

Amendments made by IGST (Amendment) Act, 2023

Following amendments have been carried out by the Integrated Goods and Services Tax (Amendment) Act, 2023. These are regarding taxability of casinos, horse racing and online gaming and levy of IGST on the said supplies.

OIDAR Services [Section 2(17)]

Section 2(17) defines ‘online information and database access or retrieval services’ (OIDAR). Accordingly,  “online information and database access or retrieval services” means services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply  impossible to ensure in the absence of information technology and includes electronic services such as,––

1. advertising on the internet;
2. providing cloud services;
3. provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet;
4. providing data or information, retrievable or otherwise, to any person in electronic form through a computer network;
5. online supplies of digital content (movies, television shows, music and the like);
6. digital data storage; and
7. online gaming.

The above clause (vii) has been substituted as follows:

“Online gaming, excluding the online money gaming as defined in clause (80B) of section 2 of the Central Goods and Services Tax Act, 2017”.

This will exclude online money gaming from the definition of OIDAR services.

Levy & Collection (Section 5)

Levy and collection of IGST is provided in section 5 of IGST Act, 2017.

Proviso to Section 5(1) has been amended to provide that in case of import of such goods, that may be notified by the Government on the recommendations of the GST Council, the levy of Integrated Goods and Services Tax (IGST) may not be required to be done in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 read with section 12 of the Customs Act, 1962 and instead, the same shall be levied and collected as inter-State supply as per the provisions of section 5(1) of the IGST Act.

Place of Supply (Section 10)

A new clause (ca) has been inserted in section 10(1) as follows:

"(ca) where the supply of goods is made to a person other than a registered person, the place of supply shall, notwithstanding anything contrary contained in clause (a) or clause (c), be the location as per the address of the said person recorded in the invoice issued in respect of the said supply and the location of the supplier where the address of the said person is not recorded in the invoice.

This amendment shall provide that where the supply of goods is made to a person other than a registered person, the place of supply shall be the location as per the address of the said person recorded in the invoice issued and be the location of the supplier where the address of the said person is not recorded in the invoice.

Special provision for specified actionable claims (Section 14A)

A new section 14A has been inserted to provide for special provision for specified actionable claims supplied by a person located outside the taxable territory. Accordingly, it provides for special provision for online money gaming supplied by a person located outside the taxable territory to a person located in India, including requirement of taking a single registration under the Simplified Registration Scheme; payment of Integrated Tax on such supplies and provision for blocking of access by the public to any information generated, transmitted, received or hosted in any computer resource used for supply of online money gaming by such supplier in case of failure to comply with provisions of registration and payment of tax in such manner as specified in the Information Technology Act, 2000.

It may be noted that the supplier of online money gaming shall obtain a single registration under the Simplified Registration Scheme. Any person located in the taxable territory representing such supplier for any purpose in the taxable territory shall get registered and pay the integrated tax on behalf of the supplier.  If such supplier does not have a physical presence or does not have a representative for any purpose in the taxable territory, he shall appoint a person in the taxable territory for the purpose of paying integrated tax and such person shall be liable for payment of such tax.

This provision is likely to face legal challenges as both, registration of foreign suppliers as well as blocking may be challenged in courts.