Few thoughts on new Rule 31B

 

The new Rule 31B changes the very plank of GST valuation from 'transaction value' to 'deposit value' for online gaming platforms and betting websites. Sharing few thoughts on the new rule, which might necessitate changes in the algorithms and promotional strategies used by the platforms.

1.      Is there room for netting down

 

The value is “total amount paid or payable to or deposited with the supplier by way of money or money’s worth, including virtual digital assets”. Does it mean if the player deposits 100, GST is 28 (100*.28) or 21.875 (100/1.28*.28). Facially, netting down looks difficult, but a historical cue from Section 115-O of the Income Tax Act, 1961 offers room for interpretation. 

 

2.      It's now beneficial to replace cash deposit bonus with upfront bonus

 

The most popular customer attraction is post-deposit bonus offered by the gaming platforms [GP]. If a player deposits 500, he gets 100 as playable bonus, thus the cost for GP is 400. Now that the liability shifts on deposit amount, offering upfront bonus (GST 112 (400*.28)] rather than post-deposit bonus [GST 140 (500*.28)] would lead to lesser GST outlay. Of-course this is only a timing difference in grand scheme of things.

 

3.      Taxability of ‘free playable cash’?

 

The phrase used is ‘total amount paid or payable or to be deposited’. But does it have the room to cover the ‘free playable cash’ offered by the betting websites as promotion. On a facial reading, it should not be subject to tax, for the player has neither deposited nor has paid nor it is payable.

 

4.           Opportunity in third party tie ups

 

If, free playable cash is not taxable, the GPs could tie up with other e-commerce sellers. For every purchase of Mobile phone of 10,000 [GST 1,800], the player gets free playable cash of 1,000, leading to GST arbitrage of 100 [1,000*(.28-.18)]. ‘With the assumption’ that GP will invoice 1,000 as promotional services to e- commerce seller.

 

2.      The new system warrants change in withdrawal limits set by the GP

 

Some betting websites offers free 'playable cash', allowing players to play games and earn. If the player plays sufficient number of games, the 'playable cash' gets converted to 'withdrawable cash' (say 200). But since a player can only withdraw subject to a minimum threshold (say 500), he adds his own cash (300) so as to reach the limit (500). In this case, the objective of the depositing cash is not to play, but to only reach the withdrawal threshold, but due to the deficient rule, it would lead to illegitimate GST collection [84 (300*.28)].