The recent move by Rajeev Chandrasekhar to amend the business rules to clarify that online gaming will here on be administered by MEITY and E-Sports by the ministry of sports certainly offers a much needed clarity. Shifting matters out of inter-ministerial and judicial haranguing as well as the state government’s purview must also be lauded as should be the creation of self-regulatory organisation (SRO), mandated to register, certify and approve games as well as providing a grievance redressal mechanism.
But amendments to the IT Rules of 2021 – that are open to public consultation till this month end before the final rules come out later this year – need a closer look to plug some of the glaring loopholes that may otherwise undermine its own goals and make the thriving online gaming space, poised to become a $8.6 billion industry in FY2027 from the current $2.6 billion as per Lumikai, a specialised VC, virtually ineffectual. And taxation is only one of the bouncers.
To be fair, several apex and high courts had already provided some legal cover to games of skill – like fantasy leagues, rummy, poker, both online and offline – to negate the earlier criminal liability that shrouded the entire sector. This despite the adolescent industry being caught between a perception battle that online games are nothing but a rich man’s gambit whipping up greed and promoting gambling.
The prohibition though continues with games of chance – lottery, gambling, casinos — but in our federal structure each states has the power to either regulate or ban them all together.
If the legislative power of states are indeed restricted to gambling then skill based games will remain outside their purview, but the degree of the state’s censure powers are yet to be tested in the apex court which is considering appeals against judgments delivered last year by the Madras and Karnataka High Courts.
The fine print in the draft amendments are adding to this confusion. By suggesting that gaming platforms like MPL or Dream 11 will have to ensure that the games it makes available on their platforms will not be in contravention to any law that is already in force, including any law in relation to betting or gambling, it has muddled up the stakes. It’s not clear if any state law enacted to regulate betting would fall foul of the newly proposed Central regulations. Tamil Nadu (via a yet-to-be-enforced Ordinance), Andhra Pradesh, Telengana, Orissa, Assam, have cracked down on all games. A simple clarification that online games not to be in contravention of any law prohibiting gambling would have made it more simple. As a principle, self regulation is a positive step. We have parallels in the broadcasting/news/OTT space under the aegis of the I&B ministry. However there is a key difference – The SRO in broadcasting does not have the power to analyse and evaluate all content. The SRO in gaming though will have powers to certify but it is not a statutory body. Various members of the gaming industry will take turns to be office bearers and evaluate the IP of peers and business rivals before a game is allowed to reach the market. There is an obvious conflict of interest in that. Again drawing parallels from the broadcasting SRO architecture, they are designed to fast track decisions and avoid long legal wrangles. A three tier grievance redressal structure, starting with the gaming company, the SRO and an inter-ministerial committee — for an industry that ought to be nimble will become too bureaucratic and slow things down. More importantly, the babus cannot play arbitrator of rules that they themselves have made. An impartial and independent judicial body should. Even in broadcasting and OTT players, this has become a contentious issue, challenged before at least three high courts. So what is sauce for the goose is sauce for the gander too, argues Abhishek Malhotra, managing partner, TMT Law Practice.
As I have argued before (GST on gaming and gambling: Don’t ‘game over’ before it has even begun) a levy of 28% — a sin tax on the full value of consideration or the wagering amount — would make the sector unviable and significant revenue leakage. This is a, 1100% hike in tax incidence for the 20-plus crore gamers (expected to double by 2025). Instead of absorbing it themselves as platforms do now, the additional 28% burden will be passed on to the users who will lose their shirt even before the game has begun. This is because the tax obligations on wagering will far exceed the operators take rates of around 10% (gross gaming revenues). So if there is an attempt to delineate games of skill and chance, should all gaming activities be categorised as gambling and be charged a sin tax with a catch-all provision?
It would be far more prudent to allow games of skills flourish under self-regulation and tax them at 18%. Make gambling mainstream by allowing it under a licenced and stringent regime instead of pushing the whole gig underground. That not only would lead to revenue loss but also expose gamers to far graver consequences. The social dynamics and the addictive impact on children and adults most also take centre stage for in app purchases can indeed become a financial liability on families. Thus parental guidance is a must. It will equally onerous to scrutinise every micro transactions, but technology exists and allows daily time and spending caps, being hardwired into the apps. Seek KYC details for wagers above a certain limit to bring in age barriers. Dealing with addiction has to be an individual’s responsibility. What can the state do to save yourself from yourself. And should it?