Insights from Aruna Sharma, Development Economist and Former Government Official
Aruna Sharma, a seasoned Development Economist and former Secretary at the Government of India, shares her insights into the regulation of the Indian igaming market as regulators prepare for crucial decisions.
Regulatory Landscape: Balancing Skill and Chance
In India, igaming is regulated through a combination of central and state laws. The Indian Gambling Act of 1857 established a regulatory framework for both online and offline gambling activities by granting state licenses to legal entities.
Recently, there has been a move to regulate skill-based games, including esports and fantasy sports, under the IT (Amendment) Act of 2000, following a notification from the central government in April 2023.
However, the main challenge has been to distinguish between games of skill and games of chance. The gaming industry has proposed parameters to differentiate between the two to the Ministry of Information Technology.
Taxation Challenges: Navigating the Burden
On the taxation front, the igaming industry is already subject to a 30% TDS on winnings and earnings under the direct tax regime. The introduction of a 28% GST has further burdened the industry, especially since it was made applicable retroactively in October 2023.
The matter is currently sub-judice as various industry stakeholders have filed petitions challenging the retrospective taxation. They await a decision from the Supreme Court of India.
Opportunities Amidst Challenges: Unlocking the Potential
Despite challenges, the igaming industry presents significant opportunities for India. With the increasing penetration of smartphones, there has been a surge in igaming and online casino platforms, attracting a large user base, particularly among the youth.
However, the 28% GST on deposits is seen as overly burdensome and could lead to a significant loss of investment and jobs. The GST Council has promised to review the decision after six months.
Towards Clarity and Consistency: The Road Ahead
International igaming enterprises are ready to contribute taxes and operate within a regulated framework, but inconsistent government policies have led to uncertainties, driving some operations to grey markets.
Clarity and consistency in regulations are crucial for the sector. Regulatory measures could lead to increased tax revenues, economic growth, job creation, and improved consumer protection.
Following the general elections in 2024, it is expected that the government and GST Council will work to provide clarity and consistency in policies. This is essential as the increasing smartphone population and growing interest in igaming provide fertile ground for innovation and exploration in the sector.
Furthermore, the development of games and the rising interest in esports and betting present attractive investment opportunities for tech firms, startups, and developers.
Implementing digital and KYC mechanisms will ensure the safety and security of users and help curb illegal activities and fraudulent practices.
