Understanding the Online Gaming Landscape: Payments, Regulations, and Emerging Trends

CXOToday has engaged in an exclusive interview with Dr Aruna Sharma, Practitioner Development Economist and Former Secy. GoI

Question 1: How do you view the overall online gaming landscape along with the use of payment apps by players?

Dr Aruna Sharma: One significant advantage of online gaming is the inability to manipulate outcomes. The technical prowess of gaming platforms in declaring winners is that they prevent fraud while ensuring a fair gaming environment. One of the key aspects of the Code of Ethics, signed by the industry bodies in December 2023 ensures the mandate for digital payments is met, which should also be supported by regulators.

Digital payments offer real-time transaction data, and in India, the three Self-Regulatory Organizations (SROs) have signed a code of ethics. This ensures a permanent and traceable record, facilitating investigations when necessary.

Transparency in payments is crucial as it not only aids in investigations but also mitigates risks associated with traditional cash-based gaming, where manipulation and cheating are more common. By promoting digital payments, we can ensure that all financial transactions are easily traceable, enhancing the integrity of the gaming industry.

Additionally, digital payments offer protection by allowing regulators to flag and analyze frequently large transactions for suspicious activity, effectively combating money laundering. The mandate by SROs for ensuring industry-wide digital payments is a significant step towards transparency and accountability in the gaming sector.

Question 2: How do you view the recent 28% GST regulation on the gaming industry? Is it a regulatory move or a revenue-driven decision?

Dr. Aruna Sharma: The 28% GST on gaming, including both games of skill and games of chance, seems to be primarily revenue-driven. Previously, games of skill were taxed at 18%, and games of chance at 28%. In April 2023, the GST Council’s decision to tax all bets placed at 28% aimed to increase tax revenues but hampered the industry’s revenues, profits, and investments. Thus, it is necessary that going forward the taxes are applied to the Gross Gaming Revenue (GGR).

At the 53rd GST Council, the Finance Minister proposed an amendment to the GST law to deal with the retrospective taxation that immensely burdened the industry. Collectively, the Council recommended adding Section 11A to the GST Act to allow the government to address cases of non-levy or short-levy of GST due to common trade practices. This amendment, which aims to provide relief from retrospective tax demands, addresses the industry’s confusion over tax rates.

The GST Council approved these amendments to the GST law, which are expected to be introduced in the upcoming monsoon session of Parliament.

However, the government should also further consider bringing amendments to tax methodology and calculations for distinguishing between the amounts used for gaming and those kept in escrow accounts for prize distribution. It would help avoid unfair taxation on money that is neither considered a good nor a service. The SROs have already shared these parameters with the government and await MEITY’s approval.

Question 3: There’s a growing pivot towards eSports. Do you think this is a genuine trend, or is it being overhyped?

Dr. Aruna Sharma: It is indeed true that eSports is gaining significant traction and reflects a genuine trend. All physical sports are gradually moving into the eSports arena, where people can form teams and compete virtually. This trend is driven by the participatory entertainment value it offers, allowing fans to engage with sports in a new way. The policies for eSports should be similar to those for fantasy sports and skill-based gaming, as they share common features and appeal.

Question 4: To sum up, with the IT amendment aimed at differentiating between games of skill and chance, what role can SRBs play in this scenario?

Dr. Aruna Sharma: Once the parameters for distinguishing between games of skill and chance are announced, the initial screening should be done by the individual gaming platforms. They need to ensure compliance with these parameters. The second level of scrutiny comes from the SROs, which can provide peer reviews, flag any deviations, and raise industry concerns.

SROs will play a crucial role in maintaining the integrity of the gaming industry by ensuring that games of chance do not masquerade as games of skill. They will also advocate for responsible gaming practices, prevent misleading advertisements, and enforce age restrictions. Their role is essential in creating a credible and stable policy environment for the gaming industry to thrive.