Online gaming

Online gaming at a crossroads, 2022 could be a watershed year for an anxious industry – 2021 in review

The year 2021 was marked by a gradual economic recovery, with most sectors returning to normal, especially around the second half of the year. However, one area that has been the subject of considerable debate and discussion, both in the media, in courts, in parliament, and in state legislatures, has been online gaming. (More sports news)

Considering its popularity and consumption, the impact of online gaming on Indian society was a topic of discussion as some states and operators appeared to be on different pages.

Supporters of the industry highlighted the industry’s contribution to the economy, employment and growth of the technology services industry while many others, including those in parliament and the media, have questioned the industry’s close connection to gambling and betting as well as its propensity to cause addiction, health problems and financial loss.

Despite this polarizing debate taking place in various forums, by all estimates, the online gaming industry has seen impressive growth in recent years, especially after the Covid-19 pandemic.

DAILY GROWTH

According to a recent report by KPMG, the online gambling industry is worth Rs 13,600 crore as of fiscal year (FY) 2020-21 and the industry is expected to more than double in the next four years to reach a size total market of Rs 29,000 crore. by fiscal 2025, with a compound annual growth rate of approximately 21%.

The report estimates that the total number of online gaming application users in India is around 43.3 crore, which is almost 50% of the total population in the 15-64 age range.

The consulting firm’s analysis also indicates that more than 50 percent of the online gaming industry’s revenue contribution currently comes from real-money card games or fantasy games. These are online games where users have to wager or put their own money and play against other users for cash prizes.

REGULATORY TURBULENCE

Despite the explosive growth of online real money games and the aggressive advertising on television as well as through sports sponsorships, the online skill-based real money gaming industry has faced turmoil over the years. over the past two years, state governments increasingly take note of potential problems. addiction and financial loss caused by online gambling.

The question of online games and their impact on young people has been raised several times in Parliament. At Rajya Sabha earlier this month, BJP MP and former Bihar Deputy Chief Minister Sushil Kumar Modi raised the issue in Zero Hour. Modi noted that uniform taxation and regulation of online gambling was the need of the moment.

Twenty-one other MPs from all parties and regions agreed and joined in the case, Vice President Mr. Venkaiah Naidu (who chaired the debates as President of Rajya Sabha) intervened and asked the Minister Information Technology Union, Ashwini Vaishnaw, to consider the matter. .

AGAINST DEPENDENCE

Several other MPs have also raised similar issues on various occasions in both Houses of Parliament. Although the central government has maintained a consistent position that individual states have the power to establish their own policy and legislative framework for online gambling and gambling / betting, there is a growing demand for regulations and a framework. policy uniforms to be published by the central government, since these online gambling activities transcend state and sometimes national borders. It is relevant to mention that Prime Minister Narendra Modi has expressed his dissatisfaction with anything that encourages “addiction”.

At the state level, over the past year and a half, Andhra Pradesh, Tamil Nadu and Karnataka have passed laws banning all kinds of online gambling for wagering or betting while Kerala, for through a notification, effectively banned the game of online rummy played for stakes. Other states like Rajasthan, Maharashtra, Uttar Pradesh and Gujarat are also considering similar legislation.

LEGAL AID, BUT …

Notably, bans imposed by the governments of Tamil Nadu and Kerala were overturned as unconstitutional earlier this year by the respective state high courts, while legal challenges to laws passed by the governments of Andhra Pradesh, Telangana and Karnataka are still pending before the courts.

The government of Tamil Nadu, however, preferred to appeal the order issued by the Madras High Court overturning amendments to the gambling law which prohibited all kinds of online games played for the purpose of betting, betting or otherwise.

The case is expected to be scheduled for a Supreme Court hearing next month, with any Supreme Court ruling likely to impact other similar laws that have been passed by other states.

An authoritative Supreme Court ruling on whether the Tamil Nadu government’s outright wagering ban on online gambling is constitutional; whether the companies that operate real money online gambling enjoy the fundamental right to commerce and commerce and whether states have the power to regulate online gambling or the matter falls within the domain of central government will have consequences wide-ranging discussion on how real money online gambling will be handled by central and state governments.

AN INEVITABLE HIGHER TAX?

Aside from the existential questions of whether the online real money gaming industry should be regulated or banned, another issue likely to be decided in the coming year is how and how. GST payment rate on the online gaming industry. Right now, online gaming companies pay 18% GST on platform fees or margin / commission they keep.

However, the Revenue Department is claiming a tax at the rate of 28% on the total contest fee or the amount of entry that each player wagers. The industry believes that such a way of calculating taxes would be illogical and spell the end of most companies operating in the industry, and few high courts have supported the interpretation of online gaming companies while ordering the authorities not to take any coercive measures. .

In May 2021, the GST Council formed a Group of Ministers (GoM) to consider the issue and any rule changes. Although the GoM was due to submit its report within six months, it has yet to do so. The GoM is expected to present its recommendations and the GST Council may vote on the matter in the coming months, with a higher tax rate being recommended for the industry.

ROCKY ROUTE

The race for real money online gaming companies can be expected to be tough until courts, government, and tax authorities can rule on the true nature of gaming and the regulatory framework that exists. surround them.

The Supreme Court making a decisive decision on whether the center or the states have the power to regulate or ban the industry and clarity on how and the rate of taxation of online games will go a long way in ensuring the certainty and stability to this rapidly growing industry, where renowned foreign and domestic investors have injected billions of dollars and tens of thousands of jobs are at stake.

The next two years will be crucial and will decide the fate of the real money online gaming industry on several fronts.

(Jay Sayta is a Mumbai-based tech and gaming lawyer. The opinions expressed are personal).


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