Badri Narayanan on regulatory challenges in real money online gaming in India
29th December 2021
The 19th episode of G2G News’ flagship show Game On With Jay Sayta was graced by L. Badri Narayanan (Executive Partner, L&S), who has worked across multiple jurisdictions including the US and India, and advises clients, financial institutions and corporations across a broad range of contentious issues pertaining to investment, tax laws and more.
He shares that the way in which some states have imposed regulations on online gaming has given them power over companies. With the explosion of the online gaming scene, the government has been concerned about the way it will be operated and regulated. It is equally concerning, he mentions, that the compliant and well-intentioned operators are getting steamrolled in the government’s bid to curb the excesses.
In India, he explains, betting & gambling is essentially state subject. With power resting in the hands of the state, various states are dealing with this new-age segment in harsher ways.
He shares, “I think the states are overreaching and trying to cover games of skill, which is specifically excluded from the gambling addiction for making amendments of public gambling act, saying that the public interest, we need to regulate these as you’re aware, something that they have tried every few decades. They tried this with competition acts. They tried this with horse racing. They tried this with rummy. I think it’s also political in terms of what they want to tell their constituency and the people.”
Betting and gambling as a term has a particular meaning which he argues does not cover games of skill but in the garb of regulation, these segments take a hit too. States don’t have the competence to regulate or make laws on skill-based games as it falls in the domain of the center.
“The recent Madras High Court is the validation of the notion. As we’ve seen clearly, the Supreme Court has laid down the difference between the games of skill and games of chance. Games of skill are where skill is based on preponderance over chance. And chance being wherein chance is higher or chance and skill are on the same level. Very clearly the distinction has been brought in and that is the genesis for us to say that normal games of skill are outside the purview of gambling,” he explains. He also believes that the legislature at the center will bring uniformity.
While the Madras High Court judgment was challenged by an appeal, Telangana is also said to be preparing to follow through with the same course of action. According to him, the Supreme Court will take the final call on this matter which continues to grow more and more contentious and puzzling by the day. Once the apex court puts the markets, the center will take precedence over the state in terms of legislation. “Either that or self-regulation, like we have always said is the best way to continue as states are not able to do that but if we’re able to have a strong body which can regulate them, that would be the best way for the industry to go forwards,” he posits.
In his observation, the center is playing the role of onlooker instead of being in charge but that will only last until there is judicial clarity.
Southern states, in the name of curbing financial risks, have been trying to weed out gaming with any degree or element of chance. “The industry is maturing to the point that they are happy to sit down, talk, and engage in conversations with the state and the center and they are happy to be regulated. The problem is whether these regulations and bans are proportionate or disproportionate. The Supreme Court and other Courts are looking for proportionate responses to these issues. Yes there have been instances of suicide and financial loss and I am sensitive to that but there are a few players who have been aggressive in selling something unfair to others. The important question is whether or not there is a better solution than just banning online games,” he shares.
According to him, banning will lead to the breaking of more laws. Jurisdictions in countries like Australia and the UK have safeguards built-in as part of their regulatory policies. He explains, “They have enforced regulations where they say if somebody has lost five times, then there should be a cooling-off period. Or if a certain amount of money has been put in which is beyond what they can sustain, then again there has to be a little bit more active participation by the online games with respect to who is coming and playing on their platforms. There are counseling and helpline options available too to ensure protection based on age, amount, and profile.”
The industry has demanded proportionate regulation. He suggests that either it should be the center regulating the online games with guidelines or empowering the self-regulatory body to do it.
Speaking about the recent hot-button issue of G.S.T levying where the manner in which it is applied and tax rate are yet to be decided, he shares, “GST has been an issue for the industry. If you take the GST and income tax and a large portion of the prize pool disappears because of these two elements, the incentive for people to play is going to be lower and what you also encourage are aggressive games that are trying to give you a lot more back which can lead to other challenges and issues.”
Speaking about the main areas of concern and dispute, he shares, “Tax department and GST department have been taking a consistent view that we will not tax the platform fee but we will charge whatever is the entry fee or a prize pool contribution also will be charged to GST.” The industry is of the view that it is a service that has been discharging 15 percent tax in the service tax regime and 18 percent tax in the GST regime.
The complication, he shares, is that there has been a dispute with respect to the rate of tax and GST. “They’re saying that we will club it with betting and gambling and impose the highest amount of tax which is 28 percent; that is one big issue which is there. The initial proposal from the group of ministers was that regardless of whatever we change on the rate of the platform fee or on the full thing, we want to collect 18 percent on the entire thing that the person puts and the way they wanted to do it is to tax the platform on a higher rate so the amount they collect on the platform fee is equal to 18 percent of the entire amount,” he adds.
Given the fact that there are far more important issues before the Supreme Court, the matter of GST will take a long time to settle. In his concluding remarks, he shared. “It will take a little bit more time for both our legislators to mature up to the fact that you can have people like this who are professional players. If you have a skill and you’re playing games of skill, you should be treated as a profession.”