The regulatory landscape remains fraught with challenges
With one of the world’s fastest-growing economies and a user base of sports fans numbering in the hundreds of millions, it should come as no surprise to industry insiders that the gaming industry in India is growing at an unprecedented pace. With the confluence of advanced technologies, expanding internet and digital payment penetration, and an increasing appetite for digital entertainment, the country’s gaming market has transformed into asignificant economic driver. However, the regulatory landscape for online gaming remains fraught with challenges.
Games of skill and chance: A clouded jurisdictional landscape
The Constitution of India grants state governments the exclusive jurisdiction to legislate on gambling and betting (games of chance). Games are classified as games of skill or games of chance in India. This classification is crucial as games of skill are generally exempt from gambling prohibition laws of different states, while games of chance are considered gambling and are banned by said state legislations. Yet the distinction between the two is not always clear-cut, leading to significant ambiguities. Moreover, online gambling (online games of chance) continues to be a battle for jurisdiction between central and state governments. While states have the jurisdiction to legislate on gambling and betting, the Centre is empowered to legislate on the internet. In April 2023, the Union Ministry of Electronics and Information Technology (“MeitY”), announced a new central legal framework for online skill real-money gaming through amendments to the Information Technology.
These amendments (“Online Gaming Rules”) proposed a light-touch, co-regulatory regime whereby MeitY was supposed to recognise independent self-regulatory bodies, which were empowered/responsible to verify whether an “online real-money game” is to be made available to the general public – in accordance with the criteria prescribed by the Online Gaming Rules. However, Government representatives later announced that the organisations who applied to become SRBs lacked objectivity, and the Government began planning to regulate online skill gaming itself. The Online Gaming Rules broadly proposed that if a game was a game of chance, it cannot be offered under said law. One could argue the Centre did not try to regulate games of chance for two reasons:
- The Government continues to view gambling and betting as a vice and does not want to promote it
- The prevalent ambiguity around whether the Central Government has power to legislate on online gambling and betting restricted it from legislating on online gambling
Skill vs Chance: The legal contect
Courts in India have long grappled with defining “skill” and “chance.” As mentioned above, most state gambling statutes contain specific exemptions for games of “mere skill.” “Mere skill” has been judicially interpreted to mean games predominantly of skill. However, instead of laying down an objective criterion to distinguish games of skill from games of chance, courts in India have arrived at their determination based on the facts and circumstances of each case, or particular characteristics of each game offering. It is pertinent to mention that games of rummy, poker and fantasy sports have been generally considered as games of skill but continue to be legal due to exemptions contained in state gambling laws.
However, as newer digital games emerge, particularly versions of poker, rummy and fantasy sports, the line between skilland chance becomes increasingly blurred.
Instances of missclassification
Despite judicial precedents, there are instances where games are misclassified, either due to a lack of understanding or intentional lobbying. A few key examples are as follows:
- Rummy and poker variants: While traditional rummy and Poker are recognised games of skill, some online platforms introduce variations with additional random elements, potentially misclassifying them to benefit from the “skill game” exemption. One could argue that this forced the Government of the southern Indian state of Tamil Nadu to implement the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022, to ban all games of chance and extend the ban to even rummy and poker, both of which have been recognised as games of skill through judicial pronouncements. However, the relevant provisions prohibiting games of skill were read down by a judgement of the Honourable High.
Court of Tamil Nadu.
- Teen Patti: Teen Patti, a traditional card game akin to poker but with a higher reliance on luck, is often marketed as a skill game. Similarly, debates persist about whether certain poker variants meet the threshold for skill dominance.
- Emerging genres: Games like esports and multiplayer battle royales are sometimes incorrectly grouped with gambling, despite their emphasis on skill.
The case to adopt best practices from Ontario's iGaming model
While the size of India’s illegal gambling market is estimated to be more than $100bn, states continue to prohibit online gambling and betting. With the introduction of a 28% goods and service tax (GST) on games of skill and chance, the Government saw an unprecedented 400% increase in tax revenue from gaming. However, as predicted, the introduction of such a high rate of GST, in addition to the preexisting 30% income tax on winnings, forced even more users to migrate to offshore, illegal gambling sites that advertise themselves as “GST free.” Reports suggest that shift to unregulated platforms could result in significant GST revenue loss of around $2.5bn annually. Moreover, the Directorate General of GST Intelligence (DGGI) in its annual report highlighted significant risks associated with this migration, including money laundering and other illicit activities. While cracking down on illegal iGaming operators seems to be a new and challenging problem for enforcement agencies in India, it’s a problem other jurisdictions have tackled effectively by legalising online gambling.
In April 2022, Ontario legalised online gambling and sports betting and launched a new framework to regulate gambling and betting under the Alcohol and Gaming Commission of Ontario (AGCO) and iGaming Ontario (iGO). The first of its kind in Canada, Ontario’s internet gaming market allows residents of Ontario to gamble online, with the assurance that those sites are closely monitored for game integrity, player protections and responsible operations. This model provides valuable lessons for Indian states looking to protect their residents from harms of unregulated gambling and fostering economic growth. Prior to April 2022, Ontario also grappled with the harms of unregulated gambling websites where its residents gambled away their life savings.
Ontario's model: A blueprint
Ontario’s framework emphasises the following:
1) Registration and compliance: Operators must obtain registration and comply with stringent requirements covering responsible gaming, technical standards that ensure gameintegrity, and anti-money laundering measures.
2) Open-market structure: Unlike monopolistic models, Ontario allows private operators to participate, fostering competition and innovation.
3) Consumer protection: The frameworkprioritises player safety, with measures such as age verification, self-exclusion tools and fairness audits.
4) Migration of users to legal market: After the introduction of Ontario’s new regulatory regime, according to an Ipsos study conducted in February 2024, 86.4% of Ontarian residents who gambled online over the preceding three months gambled on regulated sites.
Why this model could work for states in India
1) Streamlining regulation: Ontario’s centralised system eliminates confusion for operators. Indian states could benefit from establishing a designated regulatory body that oversees licensing and compliance and also collaborates with Central Governments on implementation of AML requirements and taxation.
2) Encouraging investment: A clear, predictable regulatory environment like Ontario’s would attract global operators to invest in India,bringing capital, technology and expertise.
3) Protecting consumers: Ontario’s focus on responsible gaming could help Indian states address concerns about addiction, ensuring industry growth does not come at a social cost.
While different state governments have tried to do this by banning all online real money gaming, the way forward is legalising and regulating real-money gaming. 4) Maximising tax revenue: India’s unregulated gaming market leads to revenue leakages. A structured model with fair taxation and transparent reporting could significantly boost government earnings by ensuring users move to regulated websites.
5) Taxation: iGaming operators in Ontario are required to pay tax at the rate of 20% (in lieu of HST and other costs) in addition to the annual registration fee. India has already imposed GST at 28% on games of skill and chance. Thus, adopting the Ontario model would not require making significant changes to the tax regime.
Implementing an Ontario-style model by a state in India will not be without its challenges. However, the constitution ensures that states retain control over gambling laws, allowing states to tailor their regulatoryframework to local nuances.
Conclusion
India stands at the cusp of a gaming revolution, with immense opportunities waiting to be unlocked. Yet the path to realising this potential depends on clear regulation, innovative business practices and a commitment to consumer welfare. Addressing misclassification issues, fostering growth through strategic interventions and learning from other jurisdictions can transform India’s gaming landscape into a global powerhouse. By embracing these measures, India can ensure its gaming industry not only achieves explosive growth but also sets global benchmarks for fairness, safety and innovation. The time to act is now.