Towards A Progressive Regime For Online Gaming Industry
MeitY walked a step ahead coming up with rules for the Gaming industry that has the potential to make India hub for developing, providing platforms and exposing gaming both for education to bridge digital divide and provide opportunity to hone up skill for the games. The rule mentions permissible games clearly distinguishing between the Games of skill with that of Game of Chance.
Thus, the three-fold progressive regime lists out clear parameters to distinguish the two types of games especially as both types have paid games commonly called wagering. Second is the logical taxation regime that is consistent and logical and then the industry itself strengthens the SROv(self-regulatory organisation) to work in sync with the SRB (Self Regulatory Board) formulated and recognized by MeitY.
To understand the potential of the industry, it is essential to capture the changing preferences and behaviour of India's young population. Gaming is no longer a leisure activity; it serves as a means for problem-solving, skill development, and education. Gamification techniques have proven effective in various campaigns such as efforts to improve digital divide and financial literacy. There is a need to change our perception of gaming and recognise its potential impact on society.
A major concern for policymakers is whether the gaming industry could inadvertently encourage irresponsible behaviour or lead to unintended social consequences. Responsible gaming: navigating is a thin line. It is important to address this issue by promoting responsible gaming practices. Encouraging players to make informed choices, managing addiction issues, and ensuring the industry's contribution to public safety campaigns are important steps towards this goal. By adopting self-regulation and pooling resources for public safety campaigns, the industry can demonstrate its commitment to responsible gaming and alleviate policymakers' concerns.
A point of contention in the policy discourse is the comparison of online gaming to sin industries such as tobacco, alcohol, and gambling. It is essential to draw a clear distinction between them and the online gaming industry. Online gaming, when approached responsibly, can offer entertainment, education, and skill development.
Thus, the guiding parameters as to what is permissible on line gaming ie the Game of Skill is to be guided as to what is the basis for the outcome of the game to make the winner. Wagering for the Game of Skill is to be distinct from the concept of wagering for the game of chance.
The outcome has to be based on the outcome using sensory ie motor control, knowledge, experience, practice, understanding of the game its rules and then strategizing. This will enable social interactions leading to self-assessment skills in terms of strengths and weaknesses. It evolves from long-term knowledge and experience that hones up the skill. This will evolve the definition of ‘e-Game of Skill’ which will be labelled as permissible games.
The subjectivity and cross-checking can be negated by being subjected to proven and effective tools of statistical empirical evidence for gaming,( we have a report of the Indian Statistical Institute Calcutta on Rummy as a game of skill) and the interpretations done by the courts in India.
The other challenge is the tax regime. The direct tax has evolved and settled but the GST has become a challenge. The decision of the GST council to have uniform taxation for Games of Chance and of Games of Skill ie 28 per cent has been more guided by the general impression of it being a ‘sin’. The shift is not motivated by moral concerns or the desire to categorise gaming as a sin, but rather a revenue-driven decision.
For the direct tax in the era of online gaming, where a significant transformation occurred in how income tax is levied. The government recognised that online gaming platforms provided an opportunity to identify net winnings accurately. Unlike traditional gaming, where it was challenging to track expenses and losses, online gaming offered transparency through digital transactions. To provide clarity, the government introduced Rule 133 of the Income Tax Rules, outlining the procedure for computing net winnings. This rule addressed various aspects such as bonuses, referral fees, and the deduction of the original stake amount. This clarity was a significant step forward. However, more nuanced policies distinguishing professional gaming from casual gaming are still awaited.
However, there is a clash in GST policies. As stated above a high slab of 28 per cent has definitely added burden but more is the concern with the taxation of goods and services. Online gaming companies argue that their primary service is providing a gaming platform, making only the platform fee taxable, not the entire stake amount. The stake amount is not a transaction nor an income, it is the pooling and distribution of stakes to the winner.
The gaming industry and policymakers are engaged in spirited debates on the implications of the tax regime. It is not only the high tax rates but also what is to be the base for the calculation of GST and can it be from retrospective effect could stifle the industry, causing job losses and negatively impacting India's burgeoning tech export potential.
As the industry is already faced with layoffs and smaller players shut down operations, questions arose about the balance between tax revenue and economic growth.
The third issue is the formation of SROs for the first step towards peer group deciding on their code of conduct and formalizing the parameters to distinguish the permissible games elaborated above as Games of Skill. The SRBs are to then label them as permissible games enabling a regulatory regime.
The online gaming industry finds itself at a crossroads, grappling with a tax regime that has evolved significantly in recent years. As policy changes continue, there is a call for more nuanced approaches to distinguish between the game of chance commonly understood as gambling with the of Game of Skill.. This could pave the way for fair and balanced taxation policies.
The time has come for a progressive tax regime for permissible e-Games that encourages responsible gaming and recognises the industry's positive contributions to society. By embracing these principles, India can pave the way for a more prosperous future in the online gaming sector.
Interventions needed to make India as a hub for gaming
Games of Skill vs Games of Chance
Engage the gaming community and civil society to create user awareness, dispel misconceptions, and foster a more informed understanding of skill vs chance debate.
Engage students, teachers, child psychologists, counsellors in this awareness campaign
Create a national-level awareness campaign targeted towards civil society addressing common misconceptions over skill vs chance. The campaign should highlight:
2. It is imperative that the government recognises the distinctions between online gaming and sin industries like tobacco and alcohol. Online gaming, when approached responsibly, offers entertainment, education, and skill development. It should not be subjected to the same taxation and regulatory measures as inherently harmful sectors.
3. To address concerns about irresponsible gaming behavior, the government should encourage responsible gaming practices. This includes creating awareness campaigns to educate players about the potential risks, providing resources for managing addiction issues, and ensuring the gaming industry actively contributes to public safety campaigns. Self-regulation within the industry and collaborative efforts can demonstrate its commitment to responsible gaming.
Taxation Policy Direct and specially indirect tax ie GST
4. Given the evolving nature of the online gaming industry, there is a need for more nuanced taxation policies that distinguish between professional and casual gaming. A fair and balanced approach to taxation can encourage industry growth while ensuring a fair contribution to tax revenue. The government should work towards providing clarity on taxation, addressing concerns of high tax rates that could negatively impact the industry and tech export potential.
5. The government should encourage transparency in the online gaming industry. This includes regulating digital transactions to track and report net winnings accurately. Policymakers should also consider policies that differentiate between various forms of online gaming, ensuring that taxation policies are equitable and reflective of the industry's nuances.
SRO formation and impact
The lessons from microfinance can serve as a guiding light, showing that when industries actively engage with regulators and embrace self-regulation, they can not only weather crises but also thrive and positively impact society. Through continued dialogue and cooperation, we can pave the way for a more robust and adaptable business landscape that benefits all stakeholders.
The government has established boundaries within which the industry must operate, allowing SROs the freedom to innovate and regulate effectively. This approach fosters a collaborative and adaptive environment that benefits both the industry and its consumers.
6. Recognising the potential for job creation and economic growth within the online gaming sector, the government should adopt a forward-looking approach. Policies should promote innovation and technological advancement while providing a conducive environment for startups and foreign investors. Certainty in tax policies is crucial to attracting investment and talent to the industry.
7. Policymakers should actively engage with industry stakeholders, including gaming companies and experts, to gain insights into the unique challenges and opportunities in the online gaming sector. Collaboration can lead to more informed and effective regulatory decisions.
8. Acknowledging that gaming is not just entertainment but also a tool for problem-solving, skill development, and education, the government should explore ways to integrate gaming into educational and skill-building programs. This can harness the positive potential of the industry.
9. In the rapidly evolving landscape of online gaming, the government should adopt a progressive approach to regulation and taxation. Flexibility and adaptability in policies will be crucial to accommodate emerging trends and technologies in the industry.
Dr. Aruna Sharma is a Practitioner Development Economist and Policy Advisor. She was Secretary, Ministry of Electronics and IT and also worked as Secretary Steel in Govt. of India. She was instrumental in bringing the Steel Policy 2017 and changes ifn GFR and preference to Make in India to enhance domestic consumption of steel. She was a member of the Reserve Bank of India's High-level Committee on Deepening the digital payments in India. She works in the field of Digital Transformation, e-Governance, FinTech, Digital Assets as well as core sectors like Steel and Mining laws. She has developed and successfully led the panchayat level governance model. Presently, Dr. Sharma is on the Board of Directors for some companies and writes regularly on Economy, Digital and Social Innovation, and Rural Development. As an author, she has 5 bestselling books to her credit. The latest book is Dancing Towards The $5 Trillion Economy on a Holistic Beat (Indra Publishing House).
