A balanced approach to iGaming taxation can encourage sector expansion while providing a proportionate contribution to the government
India’s online gaming industry, often referred to as iGaming, has experienced a whirlwind in 2023. The imposition of a 28% Goods and Services Tax (GST) on all iGaming companies, coupled with a lack of clear regulatory guidelines, created a maelstrom of confusion and uncertainty. To chart a course towards robust growth for this burgeoning sector, a critical distinction needs to be established: the fundamental difference between games of skill and games of chance.
Historically, gambling in India was governed by the archaic Public Gambling Act of 1977 and the Indian Penal Code (IPC). However, the advent of online games and app-based platforms necessitated a recalibration of regulatory frameworks. In 2021, the Ministry of Electronics & Information Technology (MeitY) brought online games under its purview, but the sector remained entangled in a web of ambiguity and draconian laws.
In 2023, MeitY proposed a set of amendments aimed at shedding light on the regulatory landscape. These amendments, among other things, sought to categorize games as either “games of skill” or “games of chance,” with only the former falling under the ambit of permissible games regulated by the Information Technology Act, 2000.
However, the new rules defined games of skill based on player expertise and mental prowess, but paradoxically restricted such games to non-wagering formats. This was contradictory to established Supreme Court judgments and several High Court rulings, which recognize wagering as an inherent element of games of skill, further muddied the waters.
Meanwhile, games of chance remain under the Gambling Act, subject to state-level regulations. Yet, their online avatars find themselves in a grey area, especially since the 1977 act and IPC requires a location for licensing requirements.
The Challenge
The need to clearly differentiate between games of skill and games of chance transcends regulatory clarity. It is key to establish clear taxation norms and effectively managing online gaming addiction, a concern often raised by critics of the industry.
The distinguishing parameters between ‘Games of Skill’ vs ‘Games of Chance’ are that skill games do not metamorphose into chance games if played online (including simulation exercises that allow participants to experience the difference between offline and online gaming). The testing criteria were performed by adopting statistical analysis, and the study revealed that experienced players consistently outperformed their less experienced counterparts. This suggests a strong correlation between experience and skill.
Three SROs (Self Regulation Organization) were established for game developers and platform operators to evaluate ‘game of skill’. The SROs prescribed a common code of conduct and suggested the distinguishing parameters to the authorities.
The next step was to formulate an SRB (Self regulatory Board), an independent body that will endorse the parameters and act as a watch dog for the compliance by the SROs, its members, or other gaming entities.
Unfortunately, there are various challenges that hinder the formation of this entity, which ideally should be nomination-based and not based on inviting applications.
The Way Ahead
Engaging the gaming community and civil society in open dialogue is equally essential. By creating user awareness campaigns, dispelling misconceptions, and promoting a comprehensive understanding of the skill-chance debate, we can cultivate a more informed and responsible iGaming ecosystem.
Banning games altogether is not a viable solution; instead, proactive media literacy initiatives, tamper-proof algorithms based on scientific analysis, and certifications by accredited gaming laboratories offering simulation exercises can prove far more effective in addressing addiction concerns.
Practitioner Development Economist and ex Secretary Steel, Govt. of India
Equally crucial is the matter of taxation. A fair and balanced approach to iGaming taxation can foster industry growth while ensuring a proportionate contribution to the government. The current 28% GST rate levied on the entire bet, irrespective of individual payouts, not only strains companies but also hinders potential reinvestment in the sector. Moreover, retroactive GST notices issued to certain companies further exacerbate the industry’s anxieties.
Ultimately, responsible online gaming offers a spectrum of benefits, from fostering entertainment and promoting cognitive skills to providing avenues for education and professional development. To unlock the full potential of this sector, the government and the industry need to engage in better dialogue to find a clear path: one that prioritizes clarity, fairness, and a responsible approach to iGaming that balances industry growth with societal well-being.
By embracing these principles, India can pave the way for a thriving iGaming industry that contributes not only to its economic prosperity but also to the creation of a vibrant and responsible digital entertainment landscape.
