Navigating Regulatory Waters: Fostering Growth and Innovation in India’s Online Gaming Industry
CXOToday has engaged in an exclusive interview with Mr. Vidushpat Singhania, Managing Partner, Krida Legal, Specializing in Gaming Laws
Can you share your perspective on promoting ease of doing business in the online gaming sector, particularly amidst regulatory uncertainties? How can stakeholders collaborate to streamline processes and encourage innovation in this burgeoning industry?
The gaming industry is going through a phase where regulatory uncertainties coupled with the imposition of a 28% tax rate on face value, has meant that entry into the market and establishing a presence has become much more difficult than it previously was. The legislative changes and confusion have definitely affected the general ease of business within the industry. Considering how India was seen as one of the up-and-coming faces of the gaming sphere and a country ‘spawning unicorns’, to see the regulatory flux hamper the growth and ease of doing business has been disheartening.
Stakeholders such as the self-regulatory bodies that are functional, even though not recognized by MEITY’s under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, should engage in unbiased discussions with the relevant governmental agencies to create a dialogue pertaining to the needs of the industry. The importance of a central legislation and how the policy flux has severely hampered growth should to be highlighted while sharing international best practices.
Without regulatory clarity, stakeholders are also in a tough spot with respect to introducing innovative products to the market. As a first step, therefore, creating a discourse regarding the importance of a clearer and more accommodative set of regulations is imperative.
The impact of high taxes on iGaming in India, especially the 28% GST, is a crucial concern for the rising industry. Can you shed light on the challenges faced by the industry due to these taxes and suggest potential solutions to foster growth while ensuring regulatory compliance?
Statistics reveal that post the amendment to the GST regime in 2023, around 70 GST Notices have been issued to gaming and gambling companies totaling to around 1 trillion INR in total dues. This shows the magnitude of the potential financial burden on the gaming industry, by the imposition of tax under the new GST regime. The decision to tax companies retrospectively on the face value of bets has resulted in a burden being attached to operators, that tends to go above the revenue generated over the taxable time period. This has meant that companies have had to resort to lay offs and limiting their expenses in order to remain solvent, while they fight the tax demand in courts.
This has proven to be a huge challenge to the development of a once promising industry. Such a regulation isn’t ideal and isn’t conducive for the conduct of business.
The first step towards a potential solution would be to separate gaming companies from those involved in gambling, which the government seeks to curb. Skill gaming has been recognized as a permissible business activity by various legislations and judicial bodies including the Hon’ble Supreme Court of India. Even betting on sports should be classified as a game of skill. Imposing such a heavy burden of taxation on such legitimate operators has to be reconsidered, for the industry to see growth again. The taxation should ideally be on the revenue generated by these companies and at a lower rate.
What outcomes do you foresee from the recent decision of the Supreme Court to consolidate multiple pleas challenging the 28% GST on online gaming companies? How might the decision impact the regulatory landscape for the online gaming industry in India? Can you also highlight the impacts for both online gaming companies and consumers?
The Hon’ble Supreme Court’s decision to consolidate the various pleas pending across the judicial fora with respect to the imposition of 28% taxation with retrospective effect is commendable and would help avoid disparity in the view that may be taken by various judicial panels. It would help formulate one single outcome that shall govern the situation the gaming companies that have been issued GST notices have been faced with.
The decision holds great relevance as at present, stay on GST demands have been obtained by the gaming companies, with respect to payment of the amounts raised in the respective GST notices, received by gaming entities. If an adverse decision comes forth, the GST department may initiate recovery measures and this could prove catastrophic for many companies in the gaming industry.
There are various entities which may effectively have to shut down their operations if the amounts due as per the demand, are sought to be recovered in their entirety. This would lead to customers being left with considerably lesser options to engage with in the activity of skill gaming, and could result in a reduction in usage and therein revenue generation in the sphere of gaming and advent of illegal portals.
Given India’s robust iGaming market, how do you foresee it fostering the growth of tech developers and entrepreneurs? What opportunities and challenges lie ahead in this aspect?
There are various opportunities that open up with a successfully regulated gaming industry, and this includes the opening up of job opportunities for tech developers and enterpreneurs. There are variants to popular games that are being introduced by gaming companies and to facilitate such tweaks and constant modifications, dedicated teams are required. Therefore, a conducive environment for gaming could open up a plethora of opportunities for graphic designers, software developers and coders in particular.
Policies like ‘Make in India’, ‘Digital India’ and ‘Startup India’ are intended to facilitate the operation of small scale businesses in the tech space, and an open mindset to gaming as a legitimate activity can only enhance the reach and success of these schemes, as gaming is an avenue with much promise.
The current slump has disincentivized smaller entities from entering the mainstream and holds back local innovation. Change is necessary to aid the gaming industry and the relevant associated industries to grow in line with the projections that would otherwise be applicable to a country like India.
Illegal betting platforms often target unsuspecting sports enthusiasts, particularly during high-profile events like the IPL. What measures do you believe are necessary to raise awareness among consumers about the risks associated with these platforms and to protect them from falling victim to predatory practices?
I have heard this question before. It is critical to first determine who is an illegal betting platform. The fact that various versions of fantasy sport exists and the fact that even wagering on a single event are being offered in India, as games of skill in the form of opinion exchange and sport index. These skill gaming platforms are also supported by memberships of the leading self-regulatory bodies of India. Therefore if a platform which may be able to modify it’s product to fall within the ambit of a game of skill, is licensed and seeks to pay tax in India, would not be classified as an illegal operator. I believe enough products are available around the IPL. Only the unlicensed providers, who do not seek to register in India and pay taxes, should have a problem.
The existing laws do a good job at identifying the issues associated with the marketing and promotion of gambling platforms in India and have accounted for the possibility of entities engaging in surrogate forms of advertising for promoting prohibited activities in India. However, the implementation and execution has not been adequate, and it is also to be noted that the task is made extremely difficult, owing to the lack of a physical presence or even servers associated with such entities in India.
Therefore, building awareness with respect to the same amidst the consumer base is important. Consumers need to be educated about the risk of addiction associated with the usage of such platforms. The basic tenet of responsible gaming – i.e., to treat available forms of wagering as a mere form of entertainment and not a mode of income should be stressed upon and the larger public needs to be made aware of the same.
Beyond companies establishing responsible gaming policies, facilities which may aid individuals who are addicted to such games also need to be made available at a larger scale and the Government and gaming organizations should work together towards the same. Stakeholders such as lawyers, can also be introduced into such awareness programmes to generally help customers identify what a permitted game may be and what are prohibited activities which may be avoided.
How can an AI law that the government is soon planning to table in parliament ensure that gaming in India moves towards securing user interests as well as increasing profits and revenues for the gaming platforms?
There is no clear indication with respect to what the proposed legislation with respect to artificial intelligence contains. Presently, ‘significant’ platforms require the permission of the Government prior to the utilisation of Artificial Intelligence and related tools in their offerings. This hints at the cautious approach the government is applying into the regulation of use of AI.
The legislation was announced to be in the process of formulation around the time deepfakes and false reporting using AI tools had come to the fore. Naturally, the expectation is that the legislation seeks to curb the use of AI in a counter-productive manner. AI has been heavily utilized in the field of gaming and game development, and therefore, regulation would mean additional compliances are placed on gaming operators. In fact AI could be used to identify patterns of addiction and could protect the users. The gaming companies could also use AI to calculate dynamic odds.
The distinction between legal gaming platforms, which require skill and knowledge, and illegal betting platforms, which rely on basic gambling instincts, can be blurry for many consumers. How can policymakers and regulatory bodies help clarify this distinction and enforce regulations to curb the growth of illegal gambling in India?
The step undertaken by the MEITY to involve self-regulatory bodies was the right step in this sense. Industry experts are well equipped to determine what is to be treated as a game of skill and what is to be deemed a game of chance. However, there was an issue arising from the amendments which stated that any game which involved wagering in future outcomes would be treated as non-permissible. Technically, games like fantasy sports, which have been recognised by the Hon’ble Supreme Court even to be games of skill, involve wagering on future outcomes. So, with a tweak in language to the same and empowering self-regulatory bodies, the process of identifying what a game of skill and what a game of chance is, may be solidified in a legal framework. It must be noted as mentioned earlier, that various kinds of games are available, which are recognized by the self-regulatory bodies of India, which allow wagering on a single event, in the form of opinion trading or sport index. Therefore the government may consider removing the overall restriction on wagering on a event, and have a regime of permissible games and prohibited games, based on a liberal framework.
A point that may be considered is to encourage the establishment of gaming laboratories in India and their incorporation into the regulatory framework. A scientific study by a gaming laboratory is the only quantitative manner of actually determining the predominance of skill over chance involved in the gameplay of a particular game. However, such services are not readily available and prove expensive for gaming operators. Incentivising such laboratories to make a presence in India by involving them in the regulatory framework could prove to be a gamechanger in this regard.
In your opinion, what role can technology play in detecting and preventing illegal betting activities online? Are there any innovative solutions or best practices from other jurisdictions that India can learn from in addressing this growing concern?
Equipping intermediaries with incentives to identify better and block identifiable illegal betting platforms and improving the geoblocking technology in place to identify regular streams from countries like Cyprus/Malta where majority of such off-shore operators base themselves seems to be a manner of utilising technology for this particular function.
Finally, what policy recommendations would you propose to strengthen enforcement efforts against illegal betting platforms and safeguard the integrity of sports and gaming in the country?
Firstly, I do not believe that establishing a blanket ban on the activity of sports betting is the right way to go. Many established legislations such as those in the United Kingdom and in a majority of the states in the United States of America regulate the activity. This ensures that the activity does not continue through the grey market while holding a certain level of accountability and liability on the relevant operators.
Regulating the activity also provides a steady stream of revenue to the Government. The same view is shared in the 21st Law Commission Report which envisages a licensing regime to regulate the activity of sports betting and casinos in India. Sikkim and Nagaland have already implemented licensing regimes associated with certain games of chance and this has helped regulate the vices associated with the activity while also bringing in a steady source of revenue while attracting tourism. These success stories may be considered while also looking at legislations such as those in the UK and the USA to make a case for regulation.
Beyond the same, regulation can also mean that the licensed operators require to have a presence in India, making prosecution easier in the event of any default or breach of law by such entities. Presently, as stated earlier, the lack of a physical presence renders it almost impossible to bring the illegal operators in front of the law. Therefore, it is imperative that regulation be brought about to remove the taboo associated with sports betting while also holding a check on the activity and the operators with a closer inspection possible.
