The two-billion-dollar gaming industry finally received explicit legal recognition under the Information Technology Amendment Rules, 2023 released on 6 April. This gives hundreds of millions of Indian gamers much to cheer about.
The Ministry of Electronics and Information Technology (MeitY) also reiterated the centrality of self-regulation as a means of governing fast-evolving digital industries, as we advocated in the past.
Specifically, MeitY has laid several responsibilities like registration of online gaming businesses, and certifying ‘permissible games’ that meet new industry standards to self-regulatory bodies (SRB). The next few hurdles for India’s gaming ecosystem include: the need to reconcile disparate industry-led standards that may emerge once self-regulation regimes kick in; the imperative of favourable tax treatment; and the resolution of centre-state conflicts linked to overlapping jurisdictions.
The industry standards
SRBs, that are yet to be formed, will need to create industry standards from scratch. These standards will help to evaluate disparate games, based on expert-determined parameters to ensure industry hygiene in consonance with the IT Rules. It will focus on diverse public interest aspects such as the preponderance of skill over chance in every game, mechanisms to ensure user and child safety, and safeguards against risks of financial addiction and fraud.
However, standard-setting in uncharted waters can be tricky. For instance, there are several distinct empirical methods to establish the preponderance of skill in a game based on gameplay data. SRBs could rely on empirical methods like contrasting the return on investment of top gamers with returns from the stock market, or investigate the role that learnings or instructions play in improving gamers’ performance. But each of these paths may lead to slightly different outcomes. Some game formats that pass muster with one SRB may not with another. This can lead to disputes that the State would need to find a way to adjudicate.
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Tax treatment of online gaming
Tax treatment of online games is another unsettled agenda. Currently, online gaming is categorised as an ‘online content service’. This means that an 18 per cent Goods and Services Tax (GST) is applied to commissions received by gaming services. A report of the Group of Ministers (GoM) that looks into tax policy related to casinos, race courses, and online gaming recommends a higher levy of 28 per cent. It also suggests that this rate should apply to the total value of transactions over the course of playing a game, rather than to a gaming service’s commission. Imagine, playing a card game online and paying 28 per cent GST on the total value of each buy-in. If actualised, such a regime would defeat the purpose of enabling IT Rules.
A tax regime with such high rates will naturally discourage the adoption of regulated games and stymie innovation.
Research shows that high transaction taxes led to the offshoring of crypto-asset trade from India worth about Rs 25,000 crore in just six months. One per cent tax is deducted at source on each crypto-asset transaction on domestic exchanges. High taxes on online games could similarly push millions of users towards patently unsafe online spaces, such as offshore betting and gambling websites. Equally, such a policy will diminish the resources that gaming businesses can allocate towards responsible product design.
Also read: Tamil Nadu assembly passes bill banning online gambling again, weeks after governor returned it
Centre-state conflicts
MeitY also needs to safeguard online gaming from continued legal uncertainty on account of jurisdictional overlaps. Betting and gambling are a state subject and many of them have banned some formats of online gaming. Tamil Nadu, for instance, notified an online gaming law on 10 April, just days after MeitY notified the new IT Rules. The state now classifies rummy and poker as games of chance, a determination it has made as per the powers given to states under the Indian Constitution.
A fragmented legal framework between the central and state governments is a legacy concern. It will inevitably lead to a situation where games approved by SRBs and legally recognised under the IT Rules are banned by some states.
A state-level ban would also be difficult to enforce. For instance, mobile application stores would be hard-pressed to geoblock distribution of online games within the country. A redesign of the colonial-era Public Gambling Act, 1867—a model law that states are free to replicate—could address such jurisdictional overlaps to some degree by explicitly excluding digital formats from within its ambit. States that adopt this Act would then be able to rely on the SRB-led mechanism to segregate gaming from gambling.
India has come a long way in terms of providing legal certainty to the burgeoning gaming industry. The fact that there is more homework to do should not discourage policymakers. After all, achieving a trillion-dollar digital economy target over the next few years is no easy feat. It will require a consistent commitment to investments and growth, and policymakers should be ready to do what it takes to harness bright spots in a darkening global economy.
Varun Ramdas works at Koan Advisory Group, a technology policy consulting firm, Vivan Sharan is partner.
This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India’s technology sector. Read all the articles here.
(Edited by Ratan Priya)
Source: The Print
