Regulatory Instability: Challenges faced by iGaming Companies in India

India is estimated to be home to more than 500 million gamers with a market worth $2.6 billion for gaming-related products and services thus emerging as one of the biggest gaming markets in the world with the capability to become fourfold within the next five years.

It started by innovating and formulating online versions of games like rummy, poker, etc that the industry was familiar with eventually capitalising on the spread of smartphones and the young population thereby reaching the hinterlands.

To make it popular the customization and hyper localization enabled further penetration of iGames. India recorded 421 million online gamers in 2022. The spread of iGaming from house consoles to Smartphones brought center stage the need to regulate in the mid-2000s as smartphones became the primary mode of internet usage and gaming between 2010 to 2016.

The ability to download the latest versions through online stores made iGaming more widely accepted and accessible, making gamers enthusiastic about e-sports tournaments.

Thus, what was initially in the ambit of the Public Gambling Act of 1867 controlled by state governments, the need was felt to bring in a national comprehensive mechanism to regulate and yet allow space for the online gaming industry to innovate.

The Games of Chance (gambling) continued to be regulated through the Public Gambling Act of 1867 and under the jurisdiction of the State Government with a GST of 28%.

The Games of Chance which include all kinds of gambling and betting games were distinguished from games of skill by the MeitY (Ministry of Electronic and Information Technology) formulated Group of Ministers (GoM) on revenue, income tax, DPIIT (Department of Promotion of Industry and Internal Trade).

Consequently, the GoM came up with the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules 2023 on 6th April 2023.

The IT (Amendment) Rules recognized and set it clear that online 'permissible games' meaning games of skill shall be regulated under the IT Act 2000, guided by the IT (Amended) Rules, 2023. Additionally, a GST of 18% was imposed on the platforms providing games of skill.

The rules defined a) 'online gaming intermediaries' as an intermediary that 'enables the users of its computer resource to access one or more online games'.

b) 'online game' has been (quite broadly) defined as 'any game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary.'

c) The advertisements for 'permissible online games have been allowed

d) Additional due diligence requirements built enable the users to access any permissible online real money games (RMG)' (Referred to as 'eligible online gaming intermediaries' under the IT (Amendment) Rules, 2023)

f) The SRB and SRO shall be constituted by the iGaming industry. In this regard, online gamers have taken the initiative and the SROs have come forward for agreement within the peer group for a code of conduct and parameters for distinguishing games of skill from games of chance.

The applicability of a flat 28% tax on the total value of bets placed in online gaming, irrespective of whether they are games of skill or chance has upset the applecart that was moving smoothly with the evolution of agreed principles among SROs and the oversight by SRB with clear distinction of the regulatory body between Games of Skill (permissible games) with that of Games of Chance.

It is now being referred to another GoM comprising of officials from ministries such as the Home, Finance, MeitY, etc. to reconsider the GST and how to counter episodes of money laundering and other such scams and frauds.

India with a huge potential for innovation and the possibility of the country becoming a hub for developers is also prone to the social impacts and adversities as a result of the widespread online gaming culture. The use of filters for age and the amount to be spent on gaming platforms in a day along with a healthy number of hours are also being insisted upon.

These distinguishing factors along with differentiating iGames of skill from that of chance will further reinforce the parameters for permissible games. However, some slab of taxation along with the imposition of tax on the entire collection, instead of just the operating fees (gamers should put the winning amount separately in escrow when collected which shall not be taxed), and that too with retrospectively in terms of GST has become a major pain point for the industry.

(The Author is Practitioner Development Economist and retd Secretary GoI)