It is trite to mention that online gaming is the next big sunrise sector in India. As per a recent KPMG report, the industry is likely to cross Rs. 29,000 crores by 2025 and is growing at a Compounded Annual Growth Rate (CAGR) of over 20%.
Online real money skill-based games such as rummy, poker and fantasy sports, held to be a constitutional and legal activity protected by court rulings will generate around Rs. 11,600 crores revenue by 2025 and are expected to contribute around 40% to the overall online gaming industry.
However, along with the rapid growth that the sector has seen in the post-covid era, there have been several challenges as well. Amongst the foremost issue that the industry faces is the negative perceptive amongst some government agencies and allegations that games involving staking of money tantamount to being gambling and betting activities.
Recently, a Bengaluru-based company that offers online rummy and other skill-based games was slapped with a show-cause notice of a whopping Rs. 21,000 crores by the Director General of GST Intelligence (DGGI) claiming that the company had wrongly classified offering platform services for rummy and other, with the claim that the games offered by them were nothing more than gambling and betting.
According to statements made by officials, the GST authorities are planning to claim back-dated dues from 2017, along with penalty and interest on the activities of all skill-based online gaming claiming that the activity attracts the highest slab of 28% on each stake or bet value as opposed to the 18% GST on platform fee paid by the gaming companies at present.
This demand is not just several times greater than the turnover of online gaming companies but runs contrary to logic, judicial rulings, statutory provisions and international practices.
Divergence within the government
On the one hand, the GST authorities and Union Finance Ministry have taken a very aggressive interpretation and are claiming that there is no differentiation between games of skill and chance, and any game where there are stakes or entry fee involved is tantamount to gambling and betting liable to be taxed accordingly.
However, the Ministry of Electronics and Information Technology (MeitY) has taken a more pragmatic approach, holding several rounds of consultations with various stakeholders and promising a policy framework which would clearly differentiate between gambling and skill-based games, completely prohibiting online gambling and betting activities.
As per media reports, an eight-member inter-ministerial taskforce comprising of eight departments of the central government has also come up with a similar view in a draft report submitted to the cabinet secretariat.
The report proposes creation of a regulatory body to classify games as based on skill or chance, blocking gambling or chance-based games, creation of a more robust enforcement mechanism and de-addiction measures such as responsible advertising, fixing deposit and withdrawal limits for players as well as warnings and advisories.
Surprisingly, although the DGGI (part of the Finance Ministry) has stated in its show-cause notices and submissions to court that online games such as rummy when played for stakes amount to gambling, the Secretary of the Department of Revenue, Ministry of Finance was part of this inter-ministerial taskforce that recommended differentiating games of skill like rummy and fantasy sports from gambling.
It is unclear whether this draft report prepared by a panel of bureaucrats has been finalised or whether a timeline has been fixed for its implementation.
Need for clarity from the highest level: Way forward
The ambiguity in legal provisions and varying approaches taken by different sections within the central government has created a feeling of uncertainty amongst various stakeholders of the gaming industry. Companies and VC funds are unsure about whether to make big investments in the sector and propel the next phase of growth. Whether a particular game involves substantial degree of skill or not, and whether adding entry fees to the activity would make it gambling is an issue that has been subjected to endless litigation, with some states banning the activity (that has been struck down by courts) and the issue still pending in several High Courts and Supreme Court.
Another issue that is pending decision is whether regulation of such online games falls within the domain of central or state governments. Although prodded by courts to take a call on all these issues and several reports and studies being commissioned by the government, a final outcome on the matter is still elusive.
The dissonance between different departments of the central government can only be resolved at the highest level by the Prime Minister and cabinet, by announcing a firm and conclusive policy that would provide guidance to all authorities and departments.
A long-term, cohesive and sustainable policy framework for the online gaming industry that would end the cycle of litigation and uncertainty is the need of the hour. One would hope that Prime Minister Narendra Modi, who has spoken about making India a $1 trillion digital economy and a global hub for game development, ends the quagmire around online skill-based gaming and announces a clear long-term policy framework for the industry.
The writer is a technology and gaming lawyer based in Mumbai and Editorial Advisor of G2G News. Views expressed are personal.