The Online Gaming sector in India entered a new phase at the beginning of 2022. Real money gaming has historically been marred by social and ethical issues. But lately, the Indian Government has started to acknowledge the Gaming Sector as a cornerstone of the country’s economy.
Courts have also reaffirmed that providing online games of skill is an activity that is protected by law, and that playing these games is protected by the Constitution of India as a kind of free speech. The same was held by the Supreme Court in RMD Chamarbaugwala & Anr. v. Union of India & Anr. ( 1 SCR 930). The Indian gaming businesses have become unicorns and are listed on the stock market.
This exponential rise of the Online Gaming Industry can be well compared to that of the movie industry in the 90s. The movie industry was given the status of an ‘Industry’ by the Government in 1998.
This led to a difference in state attitude towards it along with increased investment and employment. The Beneficial Rules, which are on the line, will probably have the same effect now that India’s Online Gaming business is at this crucial turning point.
However, the Gaming Industry has also come under more scrutiny. Unlawful gambling marketing and offshore gambling services accessible remotely from India have come under suspicion.
Telecom service providers have been ordered by the Ministry of Electronics and Information Technology (“MeitY“) to prohibit access to international betting and gaming websites that are offered remotely in India.
This happened as a result of sizable international transfers made by Indian gamers to wager on these sites in breach of Exchange Control Laws. Gaming Operators have also been investigated for tax evasion, money-laundering, and foreign currency breaches by tax authorities and India’s Enforcement Directorate (“ED”).
This blog will discuss the new developments brought about in the Online Gaming Industry in the year 2022.
REVISION OF REGULATIONS RELATED TO ONLINE GAMING
To consider Centralized Rules for the Online Gaming Industry, the Government formed an inter-ministerial panel (the “IM Panel“) that included the CEO of the Government think tank Niti Aayog, the secretaries of the Ministries of Home Affairs, Revenue, Department for the Promotion of Industry and Internal Trade (“DPIIT”), MeitY, Ministry of Information and Broadcasting (“MIB”), and the Sports Ministry.
The IM Panel suggested the following as per various news reports:
- A Central Law regulating the online skill gaming sector will be applicable to both domestic and foreign operators who target Indian players.
- That the Central Government would have the authority to restrict websites that offered illegal games
- E-sports would be governed by the Sports Ministry, while the online gaming industry would be governed by that MeitY. It would be up to the States to decide how to handle games of chance.
- A governing body that certifies games that meet the criteria for is being considered games of skill.
- Games of chance would be considered a “prohibited user harm” under the forthcoming Digital India Act.
- Restrictions to be imposed on how much money each participant can spend on the game.
- The requirement that suspicious transactions be reported to the Financial Intelligence Unit of the Central Government.
- Requirements for responsible gaming, including regular warnings and deposit and withdrawal caps.
- A three-tiered dispute resolution system that includes the gaming operator, self-regulatory groups, and an oversight body run by a Government Ministry.
Further, in order to discuss goods and services tax (“GST”) for casinos, racetracks, and internet gaming, a Group of Ministers (“GOM”) has been established. The GST Council, a body made up of representatives from the Central and State Governments that offers suggestions to the Government on GST Regulations, will receive the GoM’s suggestions.
The GoM’s suggestions are being closely watched since they will have a substantial economic impact on the sector as a whole. The GOM in its meeting deliberated to determine the following:
1. whether GST should be levied at a rate of 28% on both skill-based and chance-based games, and
2. whether it should be levied on the full amount that a player deposits for a game or on the commission amount. The Gaming Industry’s position has been to maintain the current GST framework for online skill-based games, which is GST at 18% on the Gross Gaming Revenue.
However, due to difference in opinion of the Finance Ministers of various States, the issue was brought forward before the GST Council. The GST Council was to decide this issue in its 48th Council Meeting but the same could not be taken up due to paucity of time. This issue is yet to be decided and it would be interesting to note the opinion of the GST Council.
Meanwhile, the GST Authorities have sent letters to a few skill gaming organizations, alleging tax fraud and demanding payment of GST, which will henceforth be computed at a rate of 28% of the total deposit amount rather than the previous rate of 18% on the commission amount.
Also, with an aim to increase industry potential through various skilling initiatives and government incentives, the MIB established the Animation, Visual Effects, Gaming and Comics (“AVGC“) Task Force in April 2022. The AVGC task force is made up of Central Government bodies, industry representatives, and State Governments.
The AVGC Task Force will design a Central and state AVGC Plan that will promote AVGC sector-specific curricula, facilitate skilling in conjunction with academic institutions, improve job prospects, improve exports, and propose financial incentives to draw Foreign Direct Investment (“FDI”) to the Online Gaming Industry.
INCREASED INSPECTION OF GAMING ADVERTISEMENTS
There have been many gambling/sports betting platform commercials in the recent years, as well as surrogate advertisements for sports betting platforms, false claims of winnings, etc., even in advertisements for skill games. Indian Regulators have taken notice of these problems and have implemented rules and recommendations against such advertisements.
Several Members of Parliament had asked MIB for a written response regarding unlawful betting and gaming through media and online intermediaries during the Parliament’s Monsoon Session.
“Whether it is true that there are surrogate advertisements in all sorts of media and, if so, what steps has the Government made to prevent such advertisements in the future,” was one of the particular questions posed. The majority of Indian States have passed their own legislation to regulate betting and gambling within their borders, according to the MIB’s written statement.
On 13.06.2022, the MIB published an advisory titled “MIB Advisory” regarding advertisements of online betting platforms. The MIB has observed in its recommendation that numerous advertisements for online betting websites and platforms are running in “print, electronic, social and online media,” despite the fact that most of India forbids such advertisements.
Additionally, it has been argued that these commercials are deceptive and do not seem to comply with the Consumer Protection Act, 2019.
The advisory warns against showing or directing betting and gambling-related advertisements to Indian consumers on online and social media, including online ad brokers and publishers. It is meant for newspapers, TV networks, news and current affairs publishers, and middlemen on social media.
In collaboration with the Department of Consumer Affairs, the MIB released a second recommendation on 03.10.2022. In this instance, separate warnings were sent to the following:
(1) TV channels; and
(2) Digital news publishers and OTT platforms,
This was done with the purpose of admonishing them strongly against airing the following:
(1) Advertisements for online sports betting platforms; and
(2) Substitute advertisements for offshore sports betting platforms disguising themselves as sports news websites and directing such advertisements at Indian audiences.
Advertising for betting sites is prohibited by the Advertising Code, according to the warning sent to private TV networks, and violations are subject to punishment. The advisory given to online platforms also mentioned MeitY’s ability to remove such advertisements in accordance with applicable Information Technology Act, 2000 (“IT Act“).
PROHIBITION ON ACCESS OF FOREIGN BETTING PLATFORMS
It was recently reported that some Indian Telecom Service Providers (“TSP”) had barred access to many international sports betting and gambling services in India as of the end of October 2022.
MeitY is authorized under Section 69 A of the IT Act to direct intermediary platforms (such internet service providers, network service providers, TSPs, etc.) to prohibit access to content on specific grounds. Although it is unclear on what grounds MeitY ordered the blockage of these websites, failure by the intermediary to comply with the order would result in loss of immunity from liability for illicit content maintained by them.
According to news reports, the MeitY’s decision to issue the blocking order was influenced by exchange control regulations violations brought up by the ED and GST violations brought up by GST Authorities.
DEVELOPMENTS IN THE STATE LAWS
There have been substantial state-specific changes in India along with a number of Central developments. The Indian Online Gaming Industry is experiencing business uncertainty due to state-specific legal complexities.
A. Tamil Nadu
The Madras High Court in Junglee Games India Pvt. Ltd. & Anr. v. The State of Tamil Nadu & Ors [WP No. 18022 of 2020] invalidated a number of changes made to the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021 in August of 2021, ruling that the entire ban on for-cash skill games brought by this Amendment Act was unconstitutional.
The Governor of Tamil Nadu gave his approval to the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games, Ordinance, 2022 (“Tamil Nadu Ordinance“) on 01.10.2022, while the State’s appeal against the High Court’s decision is still pending.
Later, on 20.10.2022, news came that the Tamil Nadu Legislative Assembly had approved a Bill to repeal the Tamil Nadu Ordinance and ban online gambling while regulating online games.
With the Tamil Nadu Ordinance, online gambling is both prohibited and regulated. The following games are prohibited:
(1) The games that have a preponderance of chance;
(2) The games that require exceptional ability to overcome chance;
(3) The games that are “presented” as having a chance component; or
(4) The games that use any random event generation component, such as cards, dice, or a wheel, are considered “games of chance” or “gambling”.
Games of chance are expressly mentioned as being poker and rummy. This definition seems to go against Supreme Court rulings that regard rummy to be a game of skill and define “skill” as something that predominately involves skill.
Online Gaming Providers now need to register under the Tamil Nadu Ordinance, which defines online games as any games other than games of chance. Only the following local operators are permitted to register under the Tamil Nadu Ordinance:
(1) Operators with Tamil Nadu as their primary place of business; and
(2) Operators with servers located in Tamil Nadu.
Through the state-wide intranet, the State of Meghalaya implemented a licensing regime in March 2021 for games of chance like Baccarat, Slots, and Roulette as well as games of skill like Poker, Rummy, and virtual sport fantasy sports, among others.
However, the State’s Chief Minister declared that Meghalaya Law would be repealed in October 2022. This announcement came in response to social and ethical issues expressed by church leaders in the state about the effects of allowing such activities.
A draft of the Rajasthan Virtual Online Sports (Regulation) Bill (the “Draft Bill“), published by the State of Rajasthan in May 2022, proposes a licensing system to control pay-to-participate formats of the following:
(1) Fantasy Sports;
(2) E-Sports; and
(3) Derivative formats of Fantasy Sports (i.e., formats of “fantasy-based selection”).
The Rajasthan High Court in Chandresh Sankhla S/o Jagdish Singh v. The State of Rajasthan [D.B. Civil Writ Petition No.6653/2019] acknowledged the Fantasy Sports as a game of skill.
According to the Draft Bill, licensing applications are only accepted from Indian residents and Indian-incorporated businesses.
Certainty is a problem for the Online Skill Gaming Sector, both in terms of knowing whether their games fall under the category of skill games and are therefore, allowed in the majority of Indian states as well as knowing how much tax there would be and how much of it.
The expansion of the Gaming Industry, which depends on the creation of new games, depends on the determination of the criteria used to gauge skill in a game.
A number of original games of skill are being presented in the diversified Indian Market in addition to the game formats recognized as such by the Indian Courts.
It is pertinent to note that there may be some Central Regu
lations pertaining to the Online Gaming Sector and the first step towards such regulation can be observed with the amendment in the IT Rules (Intermediary Guidelines and Digital Media Ethics Code), 2021 with respect to Online Gaming.
Team AMLEGALS assisted by Mr. Saurin Thakkar (Intern)
For any queries or feedback, please feel free to get in touch with firstname.lastname@example.org or email@example.com.
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