The online gaming industry has experienced remarkable growth in recent years, but that growth has come with intricate challenges, specifically in the domain of adhering to regulatory requirements.
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Aniruddha Basu, Principal Associate at Khaitan & Co, provided a comprehensive overview of the regulatory landscape in India’s online gaming sector at TechSparks 2023, the destination for deliberating, deep-diving, and understanding the promise of India’s Great Indian Techade.
Understanding the legal framework
Basu began by shedding light on the legal framework that governs online gaming in India. The central legislation that plays a pivotal role in regulating gaming and gambling activities is the Public Gambling Act. This legislation defines what activities are permitted and provides a significant exception for games of skill. Games that involve a significant element of skill, rather than chance, are considered lawful under central law. This recognition has paved the way for games like rummy and fantasy cricket to be acknowledged as games of skill.
However, it’s important to note that alongside central law, various states in India have their own legislation regulating gaming activities. While some states, like Tamil Nadu, have imposed outright bans on gaming, others, especially in the northeastern region, have established licensing mechanisms to permit and regulate online gaming.
Impact of GST changes
One of the biggest developments in the online gaming industry has been the recent increase in the Goods and Services Tax (GST) applicable to the sector. The GST rate surged from 18% to 28%, placing online gaming on par with so-called ‘sin taxes’, such as those applied to horse racing. The key concern here is that GST is levied on the full face value of the bets placed, rather than just the operator’s commission.
This increase in taxation has significant implications for the industry, leading to scaling back of operations, layoffs, and potential reduced foreign direct investment.
Basu also highlighted the uncertainty regarding the retrospective application of this tax, which has been a matter of legal contention, further contributing to the sector’s challenges.
But, the 28% GST applies only to the player’s initial deposit, not to subsequent plays using the same deposit. While this clarification addresses one issue, it doesn’t resolve the fundamental concerns surrounding the higher tax rate and its application to the face value of bets.
Role of self-regulation
Basu emphasised the importance of self-regulation in the online gaming industry. He addressed recent amendments to the Information Technology rules, which now cover gaming operators. The central development in these rules is the implementation of a self-regulatory framework for the industry.
Under this framework, the central government will designate self-regulatory bodies (SRBs), composed of industry stakeholders, to certify games as games of skill and to monitor operators’ compliance with applicable laws. This self-regulatory mechanism offers the industry a chance to have more control over how it operates, and it can pave the way for responsible growth.
The way forward
Basu concluded by offering valuable insights on the key steps that industry players should consider. First and foremost, developers and operators should focus on skill-based gaming and promote transparency. Addressing concerns related to the perception of online gaming as akin to gambling is essential.
“Developers and operators in the gaming industry must maintain their commitment to skill-based gaming and foster transparency within the sector. To address concerns surrounding the industry’s perception, it is vital to proactively ensure that our games are truly skill based and transparent, steering clear of any ambiguity with lotteries or gambling,” Basu said.
Secondly, it’s crucial to maintain proactive engagement with authorities at various levels. This includes liaising with local authorities, addressing ongoing litigation, and working collaboratively with lawmakers. The industry must consistently justify its status as a skill-based activity and engage constructively with authorities.
“The applicability of GST, even though currently the same for games of skill and chance, will not deter our progress if we continue working towards a transparent landscape with games of skill. This will enhance the industry’s reputation and alleviate regulatory scrutiny. We also need to scrutinise existing games, ensuring they genuinely adhere to the criteria of skill-based activities and operate responsibly while being transparent in terms and conditions,” shares Basu.
Lastly, building a comprehensive self-regulatory environment is vital. By doing so, the industry can take control of its destiny and make decisions that reflect responsible gaming practices. This approach will not only help the industry overcome immediate hurdles, such as GST-related challenges, but also foster long-term, sustainable growth.
Creating a transparent environment, focusing on skill-based gaming, and building a robust self-regulatory framework are essential steps for the gaming industry to overcome challenges and grow responsibly.
