Maturing Regulatory Landscape To Govern India’s iGaming Industry - An Interaction With Dr. Aruna Sharma At iGB London 2024

The term "iGaming" is gaining traction in India, signifying a conscious effort to differentiate skill-based games from pure games of chance. This distinction is crucial as gambling, largely falling under games of chance, is heavily restricted in the country by many individual states through the Public Gambling Act of 1857, forming the bedrock of gambling regulations. Consequently, the iGaming industry argues that games on their platforms involve a significant element of skill, making them distinct from gambling. This distinction is yet to be fully formalized by the government, but it has paved the way for a growing iGaming sector.

Dr. Aruna Sharma, Practitioner Development Economist and Former Secy. GoI interacted with the media persons at the iGB London 2024 edition this February and spoke about how the iGaming industry in India is steering its way through rough waters while balancing growth and taxation. The event is a pivotal gathering for gaming industry players and affiliates navigating the dynamic iGaming terrain.

Dr. Aruna Sharma, assertively stated that the market for iGaming instead of gambling is growing rapidly in India. Currently, the iGaming market in India is flourishing with a significant rise in the number of players, iGaming platforms and a remarkable increase in accessibility to smartphones and the internet.

In India - because of the people’s awareness and conscious behaviour about not becoming addicted to misleading advertisements, and the concern of the government that people do not become prey to financial frauds and scams - there is a clear-cut distinction, which is being worked out between gambling as well as games of skill. Gambling falls under the games of chance. So that's why I would like to term it as iGaming, which covers both skills and chance-based games, said Dr Aruna Sharma while interacting with the iGB persons in London.

Now, iGaming industry in India has received global attention as it has been experiencing significant challenges due to staggering taxation and regulatory changes announced by the government last year. Firstly, the implementation of the GST - that is, the goods and services tax - which has been imposed on all bets placed in the real-money games segment without differentiating between games of skills and chance is one of the fundamental issues facing the entire industry”, stated Dr Sharma.

Throwing light on the increase in the tax slab from 18% to 28% (the highest rate), Dr Aruna mentioned that in the indirect tax regime, there was a distinguishing factor between the game of chance and the game of scale. However, that distinguishing factor has disappeared under the GST regime of a 28% tax slab. The iGames of skill are where money is paid, money is betted, and winners emerge with their earnings from the use of skill and experience. That's the distinction.

However, the parameters are being worked out to distinguish between the game of chance and the game of skill by the Self Regulatory Organizations (SROs) formed under the guidelines of IT Rule (2023). Thereby, the SROs have a crucial role to play in establishing these parameters after discussion with all the stakeholders on what the parameters could be.

The central government will take a call on finalising these parameters that will help in bringing uniformity across the country. The games of chance that come under the Gambling Act of 1857 and are already being regulated by state governments will ensure in this federal scheme that iGames are provided licences according to these parameters that differentiate between games of skill and chance. Additionally, the state governments can take action to curb the games of chance that have a high social cost and potential to feed the evita such as scams, frauds, financial losses and addiction.

Dr Aruna also spoke about the reforms that should be incorporated by the industry to ensure smooth financial operations. She mentioned that the iGaming industry also has to correct the way they are operating. There can't just be tech, they have to be very careful about differentiating finances also, so that these can be differentiated for taxation purposes. The retrospective effect is unprecedented with the GST being 28%. If it can be reduced to 18, wonderful. If not, also 28% is fair enough because it gets offset and the outflow comes to around 5%-6%, which is acceptable keeping in mind the industry’s growth potential.

However, this offset can be achieved by establishing separate accounts by the iGaming industry for gamers and users to deposit their winnings separately while the taxes should be applicable on the remaining sum of money which was betted and on the platform fees. The winnings of the players, which are already taxed with 30% TDS need to be separated from the total money betted. Thus, the iGaming industry is to have separate accounts for users there should be an escrow account where this price money can be put, thereby ensuring the application of GST on the platform and other additional fees.

The other industry stakeholders such as the international iGaming enterprises have consistently expressed their willingness to abide by taxation laws in India, operate within a regulated and transparent framework, foster employment opportunities, and invest in the nation and its populace. Despite this, they have consistently urged the government to implement stable and appropriate regulations and tax policies. However, the government's decision to repeatedly prohibit operations of foreign iGaming companies has forced the entire industry underground.

Moreover, the absence of regulatory frameworks and detrimental policies have dissuaded international iGaming enterprises from engaging with India, thereby conveying an unwelcoming message to potential foreign investors. These companies encounter unjust persecution and unfounded legal actions from Indian authorities.

Thus, regulatory clarity remains a pressing concern, with stakeholders eagerly awaiting definitive guidelines from the central government. The delineation of permissible games, coupled with robust grievance redressal mechanisms, is essential for instilling confidence among users and industry players. Moreover, the need to address retrospective taxation issues, particularly the imposition of a 28% GST rate on all bets, underscores the urgency of regulatory reform.

Lastly, taxation and the government’s earnings should be related to the size of the pie. The bigger the pie, the bigger the money will come to the government through tax revenues. Thus, instead of percentage pieces increasing or enhancing, the efforts of policymaking have to increase the size of the pie by ensuring a stable, predictable and conducive regulatory regime. I think that will have a much longer and better impact and not hinder the innovation, added Dr Sharma.