Online gaming industry in India has adopted a whole new dynamic during the lockdown, and the industry is expected to grow manifold in the years to come. It has given space and scope for other ancillary industries to grow and has become a profitable space for the Indian economy. Online fantasy games, which made their advance in the industry in only recent times, has also rapidly become a booming industry.
These industries give a lot of brimming space to the Indian economy and the exploitation of its full potential would prove to be very profitable for the economy’s dynamics. However, one critical step in the process is the legal framework that needs to be in place for the industry to actually benefit the economy. The need for regulatory body in the gaming industry has become the need of the hour and it’s time we talk about it. With the sport season dawning upon us, let’s take a moment to understand the current legal frameworks and see the loopholes that these industries currently have.
Legal Gaming Framework
To begin with, the words gaming and gambling are interchangeable, and the country does not have unified laws for them in place. What this means is that the laws are variable in their raw form to the day and they’re changed state-wise. More specifically, the Constitution of India gives authority to each state of the country to make its own gambling laws, bringing in the variability we referred to.
This means there are deviations in laws, state-wise, ranging from flexibility in laws to completely banning the genre. For example, online games have been banned in Telangana, Andhra Pradesh and Tamil Nadu. In West Bengal, games of bridge, poker and rummy are excluded from the definition of gambling, making the terminologies also variable state-wise. In Kerala, the government notification excludes rummy from gambling, provided no side-betting is involved. Sikkim and Nagaland, on the other hand, require a license for online games.
In many states, gambling laws continue to be based on a law propositioned pre-independence, known as the Public Gambling Act, 18S67. To be direct, these laws are not consistent, and adequate for that matter, with the modern day gaming. For instance, this law contemplates games being played in a ‘common gaming house’ which is a physical space or enclosure. However, with the advance of digital economy and all things being virtual, it cannot be denied that these laws are not only out-dated but insufficient.
This is represented from the fact that even states that recognize online games have in place varying treatment. Tamil Nadu’s system is such that skill based games are permitted, even though the online games have been banned. This has been made on the distinctive definition of skill-based and chance-based games. Telangana and Andhra Pradesh, on the other hand, have altogether banned online games, which are played for side-betting or incentives like money or stakes.
Therefore, due to the lack of uniformity and clarity in the laws for the industry, different courts in India have taken different views on how to treat online games. The Supreme Court of India has works on a distinctive mechanism – games where chance dominates over skill, called chance-based games, are banned while games where skill dominates over chance, called skill-based games, are permitted.
However, in the absence of a strict mechanism to define games of skill and chance, courts have applied this principle differently over different cases, setting varied precedents. As a result, these are not accurate portrayal of the practicalities of modern gaming, because the lines get a little blurred. The result is a complicated legal regime that makes it hard to determine, and easy to find loopholes, of whether a particular game is permitted or not.
This confusion turns problematic in several ways. Firstly, a lack of set rules for the industry gives a wider scope for doubt and disagreement between consumers and companies. Such cases are taken to the courts and translate to increased expenditures for companies as well as simply more burden on shoulders in terms of work to be done.
When it comes to taxation, the skill vs. chance debate continues to create complications. For now, under the Income Tax Act, 1961, as per the provisions of section 115BB, any income arising from the game of any sort which does not involve any skills are charged at the pace of 30% be that as it may, assuming the game includes the abilities of an individual to be applied, the equivalent will be charged at ordinary rates as are appropriate if there should arise an occurrence of the beneficiary of such pay.
The taxation law seems to be inadequate as the confusion between skill vs. chance continues to breed leading to huge loss of tax revenue for the government. Supposedly, an online game (actually a game of chance) has declared itself as a game of skill, will be able to dodge the special tax slab of 30%. Besides, the 30% tax slab is applicable to players winning a sum of INR 10,000 or more. With more and more students involved in the online gaming industry, there are several players whose income ranges from five to seven thousand rupees. There’s a need for an additional tax slab that caters to this income bracket.
Skill Vs. Chance Debate
A big loophole in the online gaming industry is the indeterminate nature of a game with respect to skill vs chance. Several games like Rummy, Poker, Fantasy games have remained in doubt for being games that require skills to win or are chance based games. As a subject of state, legality of such games is not uniform across India.
It is clear that gambling is prohibited in India under the Public Gambling Act of 1867, however, consideration of online games like OFS, poker etc. as gambling or skill based games is different in the eyes of different states. While most states allow such games, states like Gujarat, Assam, Odisha still put these under illegal activities. This lack of uniformity is a big policy quagmire for India as it creates uncertainty and the cost of doing business.
Usually unrelated, the gaming industry has recently been in light for issues related to national security. Recently, PUBG has been sacked as it was found that the company has been supplying user information to the Communist Party of China (CCP). According to an investigation by IGN India, data of Indian users is being exported to Chinese servers. Although, Krafton games (Company behind PUBG in India) has fixed this route and has been given a green signal as of now, the question remains that there might be several other games engaging in similar activities under the nose. This gives birth to a need for establishing a code of conduct for online gaming operators in India.
Regulatory Body: The Need of the Hour
In the presence of a host of different problems, there is a need for a single self-regulatory organisation to be set up in the gaming industry. The functions of the organisation would include but would not be limited to:
1) Assessment of Skill vs. Chance: In order to reduce ambiguity and lack of uniformity in the OFS space, the regulatory body will form an independent evaluation committee that would assess each member of the OFS space. The existing members as well as future members would have to seek approval from this committee to continue their operations in India.
The committee would form a test under guidance from legal and statistical experts to ascertain whether a game is predominantly skill based. Only predominantly skill based games will be given approval and allowed to operate. This move will not only remove the grey area in the system but would also reduce the burden on the legal system of India where the current conflicts of skill vs. chance end up.
2) Reduce Inter-state complexities: Currently, members of the OFS space face difficulty with compliance to separate demands of different states relating to their operation. The regulatory body would reduce inter-state complexities by appointing a regulatory representative to each state.
The representative would advise states on adjusting their legislation with respect to the guiding principles and would also assist OFS space members with their compliance issues in their respective states. This would boost industry growth as it would reduce unnecessary costs incurred by these companies for compliance but would also increase competition by improving ease of doing business in this industry.
3) Act as a Data Privacy Watchdog: With India becoming a major market in the gaming industry, it has attracted an array of foreign investors and companies hoping to secure their position in the market. However this situation also provides suitable conditions for data privacy violation and data theft.
Setting up of a data privacy watchdog has now become imperative to safeguard the national interest of India as well as the interest of the consumers. The regulatory body would keep the data route of gaming companies in check while imposing a fine on any discrepancies or misdoings. Any foreign company venturing into the Indian gaming space would have to get its application checked for any data collection without the expressed consent of the consumer.
Edited by Tanish Sachdev