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India’s Gaming Sector Craves Supreme Court Intervention

India's Gaming Sector Craves Supreme Court Intervention

Once a burgeoning industry with immense growth potential, India’s online gaming sector is now grappling with regulatory unpredictability and heavy tax burdens. The pending Supreme Court decisions, advancing at a slow pace, could either stabilize or disrupt the industry’s trajectory.

Regulatory and Tax Hurdles

India’s gaming sector, initially rooted in fantasy sports, card games, and e-sports, has evolved into a platform primarily for skill-based games. With market size estimated by KPMG at $2.8 billion in 2021 and projected to exceed $5 billion by 2025, recent regulatory measures have put these growth prospects at risk. The Goods and Services Tax (GST) Council’s recent 28 percent tax on total game entry fees — a stark increase from the previous 18 percent on platform fees — has drawn industry-wide criticism. Operators argue that taxing the entire entry deposits could increase tax costs by up to 1,000 percent, a burden they cannot sustain.

E-Gaming Federation secretary Malay Kumar Shukla calls this a disastrous move, stating that such a tax structure will push the industry towards unregulated online casinos operators, leading to lost government revenue and a damaged industry reputation.

Landmark Cases Before the Supreme Court

The Supreme Court is currently considering two significant cases that may redefine India’s gaming landscape. The first involves Karnataka’s appeal against a High Court decision that blocked a statewide ban on online games of skill involving stakes, a ruling that could set a precedent affecting similar bans in other states. A favorable ruling for the state could undermine regional protections for skill-based gaming, while a ruling for the industry could shield it from inconsistent regulations.

The second case involves a $2.6 billion tax demand against Gameskraft Technologies by the Directorate General of GST Intelligence (DGGI). The Karnataka High Court sided with Gameskraft, distinguishing skill games from gambling and rejecting the tax claim. The Supreme Court’s decision on this distinction between skill and chance could have far-reaching tax implications for the industry.

Impacts of Delays and Growing Industry Challenges

With legal clarity on hold, India’s gaming sector remains in limbo, as the slow Supreme Court process has left the topic largely absent from mainstream media. According to Roland Landers, CEO of the All India Gaming Federation (AIGF), the heavy tax burden and legal uncertainty have already led to layoffs, with companies like Mobile Premier League and Spartan Poker trimming their staff. While larger players try to adapt, mid-sized and smaller companies face an existential crisis as operating costs soar and profit margins diminish.

Investor interest, especially from foreign sources, has also waned. As concerns over regulatory unpredictability rise, India’s competitive advantage may be at risk of shifting to other countries with more stable gaming regulations.

Broader Economic and Regulatory Implications

While the government hopes the 28 percent GST will generate much-needed revenue, projected to bring in $1.7 billion annually, industry insiders warn that such a tax rate may drive operators and players to the unregulated grey market, costing the government revenue and weakening consumer protection. Experts suggest a gross gaming revenue model, taxing platform earnings rather than deposits, to balance industry growth with government revenue objectives.

Outlook and Potential Outcomes

The Supreme Court’s decisions will shape the online gaming landscape in India for years to come. If the Court upholds protections for skill-based games and rejects excessive tax claims, the industry could see renewed stability and growth. Conversely, rulings in favor of blanket state bans and full tax claims could cripple the sector, with job losses and a potential migration of players to unregulated platforms.

As the Court considers the legality of challenges posed by Karnataka, Tamil Nadu, and the DGGI, India’s gaming industry awaits a regulatory framework that balances growth with government interests. The question remains: will these regulations allow India’s gaming industry to thrive or push it into stagnation?