INDIA MARKET UPDATE
Introduction Per some estimates, 1 the industry has already grown annually by 28 percent between 2020 – 2023, and is estimated to surge to INR33,243 crores by 2028 (approximately US$4 billion). In April, 2024, 2 Prime Minister Modi famously spent a day with top Indian gamers and sought to understand the regulatory and other challenges in the industry. It has been suggested that the growth of online gaming in India forms a crucial part of the Government’s ‘Digital India’ initiative which is set to transform India into a digitally empowered nation. However, despite the promising growth story of India’s online gaming industry, regulatory uncertainty remains. The Government backtracked on the much-anticipated federal co-regulatory framework between designated self-regulatory bodies and the Ministry of Electronics and Information Technology (“MeitY”), contemplating a Government regulator instead. 3 The absence of federal regulations has resulted in the State-wise uncertainties persisting, as well as confusion among other regulators and law enforcement agencies. Certain Indian states have challenged their respective High Court orders striking down bans on skill gaming as unconstitutional, before the Indian Supreme Court (“SC”). The outcome of these appeals may determine important questions on the permissibility of prohibition on skill games by states. In addition, several gaming operators have received show cause notices from goods and services tax (“GST”) authorities seeking retrospective payment of 28 percent GST on the entire bet value. The industry has hitherto been paying GST at the rate of 18 percent on the platform fee. These show cause notices have been challenged before High Courts, and the proceedings have now been transferred to the SC, for its consideration. 4 Meanwhile, since October, 2023, the industry has been grappling with amendments to the GST law imposing 28 percent GST on the
entire deposit amount. Some reports estimate that half of real money online gaming entities have experienced a dip in revenue pursuant to these amendments. 5 While the GST Council is reportedly proposing to introduce amendments to the GST law to enable a waiver of the retrospective imposition of taxes, the prospective GST rate will remain. Finally, concerted efforts by regulators and self-regulatory bodies to curb remote gambling operators’ operations in India continue and is likely to be a focus of Indian regulators in 2024. We recap some of these key developments in our update on India’s online gaming industry, and consider what the next few months may bring. Before we delve into these developments, certain aspects are worth noting: betting and gambling is governed by state-wise anti-gambling laws 6 (“Gaming Enactments”) in India. Skill games are excluded from the gambling bans in most states. Some High Courts have recognized that states may regulate games of skill. However, the treatment of games is not consistent across the states, leading to significant state-wise uncertainty. The regulatory treatment of games is constantly changing at a state level. For instance, after the ban on skill gaming in the state of Tamil Nadu was set aside by the Madras High Court, 7 the state government brought in a regulatory framework for online games. In addition, Gaming Enactments do not have extra-territorial applicability to apply to offshore operators. Abandoning the self-regulatory approach Amidst calls for federal regulation of online gaming, on April 6, 2023, an amendment was introduced to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules”) to regulate online gaming at a
1 See https://www.financialexpress.com/business/brandwagon-online-gaming-segment-in-india-experienced-cagr-of-28-reveals-ey-re- port-3328710/ 2 See https://www.thehindu.com/opinion/op-ed/getting-to-a-new-level-in-indias-online-gaming-sector/article68146583.ece 3 https://www.livemint.com/industry/online-gaming-self-regulation-hits-roadblock-meity-weighs-direct-control-11704104343456.html 4 Directorate General of Goods and Services Tax Intelligence & Ors v Gameskraft Technologies Private Limited [SLP No. 19366 of 2023, SC] 5 See https://www.deccanherald.com/business/online-gaming-firms-see-revenue-fall-layoffs-since-gst-hike-report-3074689 6 Entry 34, List II, Seventh Schedule, Constitution of India. 7 Junglee Games India Pvt. Ltd. v The State of Tamil Nadu, 2021 SCC OnLine Mad 2762
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IMGL MAGAZINE | SEPTEMBER 2023
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