How can India Mitigate Risks of iGaming while Ensuring Sustainable Growth of the Industry: Policy Perspective

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India's online gaming sector is booming, driven by widespread internet access and smartphone use. With smartphones now comprising 60% of India's ten million mobile phones and replacing feature phones, numerous investors, startups and international gaming companies have entered the Indian gaming market to leverage and cater to the growing demand for free and paid gaming apps.

The rise of digital payments has further fueled growth, making online gaming more trackable, transparent, and accessible even in remote areas of India.

Regulatory and Taxation Complexities facing iGaming

The rapidly expanding online gaming industry faces significant challenges due to regulatory and taxation policies. Ambiguity in taxation and registration procedures for new platforms, both domestic and foreign, complicates market entry.

Indian laws also lack clear definitions between games of chance and skill, creating legal confusion. Judicial decisions have established criteria for differentiating between the two - Games of Skill and Games of Chance.

Games of skill, where success depends on ability and expertise, are treated more leniently. Conversely, games of chance, determined by luck, require stricter regulation. However, a comprehensive legal framework is needed to ensure fair play, protect users, and promote industry growth and innovations.

In India, regulatory responsibility is split: state governments oversee gambling under the Indian Gambling Act, while the Ministry of Electronics and Information Technology (MeitY) defines permissible skill-based games. This creates a gap for a nationwide law addressing the industry's challenges and opportunities.

The proposed amendment to the Central Goods and Services Tax Act (CGST) and the addition of Section 11A, which aims to abolish retrospective taxation, offer hope for the industry. However, parliamentary approval is pending. Section 11A seeks to streamline the taxation framework, potentially reducing tax burdens and fostering industry growth by providing clearer guidelines.

Despite these efforts, uncertainty persists regarding the indirect tax rate, currently at 28% GST. High retrospective taxes and unclear regulations could drive online gaming into grey areas, threatening industry growth and sustainability.

Continuous dialogue by self-regulatory organizations (SROs) has led to Section 11A's provision for exemptions from retrospective tax impositions. Additionally, the Supreme Court's upcoming ruling in July is expected to clarify GST's legal and policy implications, addressing the complexities facing the online gaming industry.

Role of Self-Regulatory Organizations (SROs)

To mitigate risks, self-regulatory organizations (SROs), established through the IT Rules, must enforce KYC regulations and ensure secure digital payments. The growing market and GST Council's recognition highlight the need for SROs to maintain a strict code of conduct and regularly address unresolved issues, serving as effective channels for industry concerns. States like Tamil Nadu have established regulatory bodies to manage industry concerns and promote responsible gaming by implementing filters for player time and spending.

To ensure long-term growth, gaming content must cater to Indian gamers' diverse interests and include educational themes. Strict adherence to SROs' code of conduct is crucial, requiring mandatory KYC, exclusive digital payments, blockchain technology to prevent data manipulation, adherence to advertising norms and analytics to detect money laundering.

SROs should ensure winners pay direct taxes and maintain separate fees and escrow accounts for real money transactions to enhance transparency and trust. Until official regulations are established, platforms must differentiate between skill and chance games and follow self-imposed guidelines.

Path Forward for India's Online Gaming Industry

The online gaming industry in India is at a crossroads. By addressing the risks associated with regulatory and taxation uncertainties, the sector can reach its full potential. Policymakers must collaborate closely with industry stakeholders to create a clear, consistent, and progressive regulatory framework that encourages innovation while protecting players and ensuring market integrity.

The long-term growth of India's online gaming industry depends on a balanced approach that reduces risks through strong regulatory measures while encouraging innovation and cultural relevance in game development. By implementing these strategies, India can not only protect its online gaming industry but also establish itself as a global leader in this rapidly evolving sector.

By: Dr. Aruna Sharma, Development Economist and retd Secretary GoI