Abstract
The gaming industry in India now faces challenges threatening its sustainability and global competitiveness. This article explores the industry’s struggles, including misconceptions equating gaming with gambling, and the impact of stringent taxation policies. These measures have the potential to undermine stakeholder confidence and deter investment. To address these challenges, the article advocates for the development of a comprehensive ethics code tailored to the gaming industry. Analyzing existing self-regulatory charters reveals inconsistencies and limitations, including inequitable membership structures, vague compliance consequences, and insufficient legal clarity. The proposed ethics code would standardize practices, enforce compliance, and foster trust through clear regulations covering gamer responsibilities, transparency, grievance mechanisms, and operational fairness.
Keywords
INTRODUCTION
In the recent past, the evolving gaming industry in India has been in turmoil. The industry, from being referred to as one of the “sunrise sectors” where it can achieve “atmanirbharta” and grow exponentially, now faces the question of whether the industry would even survive in this competitive sector at the global stage. 1 It has been in the recent news for the new regulation that the government has floated to tax the sector under Goods and Service Tax (GST) at the highest bracket of 28%. 2 Analysis and reports of reputed scholars, media giants, investors, and gamers have predicted that the impact of this taxation would be detrimental to the industry’s survival and competitiveness. 3 Adding GST on top of the 30% Tax Deducted at Source (TDS) applicable to the sector makes the industry less rewarding for both the companies in the market and its users. This has become a point of concern for everyone involved in the industry, and foreign investors have shown their concern by reaching out to the Government to revisit this decision. 4 India, from being an investment hub in this industry, now sees itself losing the confidence of foreign investors due to the recent development that has taken place. 5 The rationale given by the Finance Minister to tax this industry, other than the increase in revenue for the government is based upon a “moral question.” 6
The gaming industry has faced a bias since its inception, where it is often equated with gambling. 7 This leads to the development of prejudices and questioning of the legitimacy of the existence of this industry, and also makes the sector face challenges. This can be seen in the recent developments in the taxation system, where it has taxed gaming and gambling under the same heading. The Courts in India have reiterated multiple times that there exists a difference between a game of chance and a game of skill, which has not been followed in this recent development. 8 Over the last decade, multiple laws have come in various states that have disrupted the practice of online gaming, where all forms of it were held to be unlawful. 9 Multiple Courts have passed judgments that categorize online gaming as illegal and have entirely ignored the jurisprudence that exists in law. 10 These judgments go against the doctrine of Stare Decisis and have been overturned multiple times, and many provisions of legislation have also been declared to be void. However, this leads to an unwarranted loss to the companies in the sector as they have been forced multiple times in various states to stop activities temporarily. 11 Due to this lack of legislation, the market becomes unfavorable for investors.
Therefore, the approach to bring this newly evolving industry must be in consonance with the growth it offers. Instead of regulating the sector by harshly taxing it to reduce its scope of action, laws should be drafted and implemented to bring this industry under the purview of the law.
The laws have to be aimed at not merely regulating the industry but also helping build trust in the industry.
The intermediary guidelines have been amended to increase its purview and bring online gaming under this new draft. It has been a very progressive step by the government in front of regulating the industry. 12 However, certain lapses and ambiguities also exist in these guidelines (which would not be dealt with in this article). 13 To build trust in the people, it is suggested that the formation of an ethics code that deals solely with this gaming industry in a similar fashion to how an ethics code exists for social media intermediaries within the intermediary guidelines.
Currently, some form of this code exists in a manner that the intermediaries themselves make to govern themselves. This article will look into these existing charters and critically analyze the contents, measures, and clauses these charters hold and the level of security these charters offer. It also delves into the ambiguities and problems these self-regulation guidelines provide, some of them being that not every member of these charters has an equal stake and opinion on these guidelines and also that the maximum punishment they have to offer is revoking the membership of the member if there is nonadherence to these guidelines.
Therefore, it is necessary to develop centralized guidelines that all the companies in the sector must adhere to and also enlist the punishments for not following the same.
THE “MORAL QUESTION” AGAINST THE GAMING INDUSTRY AND THE STANCE OF THE GOVERNMENT WITH START-UPS
It was announced by the Finance Minister Nirmala Sitaraman during the 50th GST Council meeting the decision to tax the gaming industry at 28%. 14 The clarification provided indicated that the objective of this action was not to cause the collapse of this sector, and the government does not intend to pursue such an outcome. It relied on the concept that the GST bracket for essential commodities cannot be used for this industry as it would be morally incorrect.
However, this industry offers immense benefits in the long run. According to the statistics of the government, India is currently the world’s largest mobile gaming market in terms of downloads. At present, this industry, which is relatively new, has a market value of $1.6 million and is estimated to increase in the future. There are currently over 400 million gamers in the country, along with more than 500 gaming studios in the country. 15 According to Statista, this industry is likely to generate a revenue of more than 8 billion dollars by the Financial Year (FY)-2027. 16
Thus, with this introduction of tax for the industry, the government risks hampering the projected benefits of the industry while also reducing employment opportunities as this sector becomes less favorable to invest.
Formation of group of ministers to delve into the issue of taxation and the 50th and 51st GST council meet
The establishment of a Group of Ministers (GoM) under Mr. Nitin Patel was undertaken in accordance with the decision made by the GST Council. 17 The primary objective of this GoM is to thoroughly analyze and assess issues related to taxation on casinos, horse racing, and online gaming. The GoM was formed on May 24, 2021, and comprises a total of seven members. 18
The GoM presented its first report in June 2022, which was then presented to the GST Council at its 47th meeting. At the session, it was determined that the GoM would undertake a comprehensive review of all the concerns once again. 19
During the 50th GST Council Meet, the GoM presented its second report, wherein it proposed that online gaming, horse racing, and casinos be subjected to a tax rate of 28%. 20
Following this recommendation, the council decided to include online gaming as taxable actionable claims under Schedule III. It reached the conclusion to tax the three activities, namely casino, horse racing, and online gaming, are subject to a uniform tax rate of 28%.
The council made an error in equating a game of skill with a game of chance, and as a result, they came to the conclusion that both types of games should be taxed at the same bracket. This decision undermined the jurisprudence on games of skill and chance, which said that they should be treated differently.
The decision was reviewed in the 51st Council Meet, where it deliberated on the issue of taxing casinos at par with online gaming based on game of chance and skill issues. The council recommended clarity on the matter. 21
RECENT DEVELOPMENTS IN LEGISLATION AND JUDGMENTS IN REGARD TO THE GAMING INDUSTRY UNDERMINE APPRECIATION OF THE GAME OF SKILL CONCEPT IN GAMING
There has been extensive jurisprudence on the game of skill against the game of chance debate where it was held that a game of skill does not amount to gambling. A game of skill is characterized by its reliance on the player’s knowledge, attention, training, experience, and dexterity, as well as a certain degree of luck. 22 Gambling is a game of chance, which refers to a kind of game in which the final result is solely decided based on chance. In the case of RMD Chamarbaugawala v. Union of India, the Supreme Court of India used the premise of a “skill test” as a determining factor in discerning the classification of an activity as gambling or nongambling. 23
Evolving from this jurisprudence, the courts in India have looked into the legality of Real Money Games. Multiple High Courts have concluded that fantasy sports are predominantly games of skill and do not amount to gambling. 24 These judgments have been reaffirmed by the Supreme Court, which reached the same conclusion and dismissed a petition challenging the judgment of the High Court. 25 Rummy was also considered to be a predominantly game of skill and could not be equated to gambling. 26
However, among the recent developments, the distinction between these games and gambling has been neglected and is treated in the same fashion in the legal and judicial sphere. Online gaming has been equated to gambling even though the games they offer include fantasy sports and rummy, which were held to be a game of skill by the judiciary.
The case of Karnataka, Tamil Nadu, Andhra Pradesh, and Kerala
The Telangana State Gaming (Amendment) Ordinance, 2017, was issued on June 17, 2017. 27 It broadened the definition of game of chance. Earlier, the State Gambling Law had an exception to games of skill. It added an explanation to this exception and held that any game of skill with an element of chance cannot be termed as a game of skill. Thus, it made Real Money Games on the online medium illegal in the state.
The government did not stop there and passed a Second Ordinance clarifying its strong stance. It removed the exception game of skill altogether from the gambling law and made it a punishable offense under the law. 28
This was challenged at the High Court in the case of Head Digital Works Private Limited vs. The State of Andhra Pradesh, and the matter is still pending. 29
In the year 2021, the State of Karnataka amended its Karnataka Police Act, 1963. It was amended to ban all forms of gambling, which included online gaming on Real Money Games on games of skill such as rummy and fantasy sports. 30 This was challenged at the Karnataka High Court, which struck down this amendment in the following year of introducing this provision. 31
The State of Tamil Nadu passed the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022. This act banned all sorts of gambling in the State. It, however, also banned rummy and poker, which are known to be games of skill when it is played in the online medium. 32 This amendment’s constitutionality was challenged at the High Court. The court held that the amendment failed to distinguish between a game of skill and wagering. 33 It held the amendment to be arbitrary. This act could also lead to a violation of fundamental rights of trade and business. 34
The Kerala Government also banned online rummy by amending the Kerala Gaming Act 1960. 35 The High Court struck down this amendment 7 months after the provision was introduced. 36
THE NEED FOR THE DEVELOPMENT OF TRUST IN THE GAMING INDUSTRY IN INDIA
The need for the development of trust in the gaming industry in India is paramount, given the recent turmoil in policy and legislation. The imposition of a 28% GST on the gaming sector, coupled with a 30% TDS, has raised concerns about the industry’s sustainability and competitiveness. This taxation policy not only discourages foreign investment but also hampers the growth of an industry that holds immense potential.
The gaming industry has long faced biases, often being equated with gambling. This mischaracterization has led to the recent tax regulations that have treated gaming and gambling the same. The lack of clear legislation in various states has created uncertainty for companies, causing disruptions and unfavorable conditions for investors. Instead of taxing the industry heavily, India should implement laws that bring the sector under proper legal purview while simultaneously fostering trust within the industry.
To build trust, a code of ethics specific to the gaming industry could be developed, similar to those established for social media intermediaries. While some self-regulation guidelines exist within the industry, these guidelines have limitations, including the absence of centralized standards and inconsistent enforcement. The formation of a comprehensive ethics code that all industry stakeholders must adhere to, along with clear penalties for noncompliance, will go a long way in building trust and confidence. Thus, building trust in the Indian gaming industry is essential to ensure its sustainable growth and competitiveness.
ANALYZING THE GAMING SELF-REGULATORY CHARTERS THAT EXIST IN THE COUNTRY
Part III of the IT Rules 2023 consists of the code of ethics on digital media. 37 This code, however, is applicable only to publishers of news and current affairs content and online curated content. 38 The Rules require the creation of a self-regulating mechanism for online gaming. These self-regulating intermediaries have to publish a charter, which must be complied with by the gaming platform providers. 39 However, it does not define its important contents like it has for digital intermediaries. Thus, there exists no framework upon which the self-regulatory bodies must function, thereby varying from each other.
There currently exist three main self-regulatory charters for Real Money Games in India made by private entities. The All India Gaming Federation (AIGF) was one the first self-regulatory body in India for online gaming on games of skill in India. 40 The E-Gaming Federation (EGF) is another self-regulatory body governing online gaming. 41 The Federation of Indian Fantasy Sports (FIFS) is a dedicated self-regulatory charter for fantasy sports games in India. 42
Membership
All the Self-Regulatory Bodies that exist in India are Non-Profit Independent bodies, and thus, the online gaming intermediaries need to register under them and take membership. These bodies offer certain perks and benefits to the members in various forms. They need to be renewed every year by paying the membership fees to continue using the benefits these bodies have to offer. 43 However, there exists an inequality in standing among these members.
Each body offers different categories of membership, which companies can avail at different costs. Usually, four types of memberships are offered by these companies, each providing certain benefits. 44 These benefits keep upgrading with the category of the membership availed by the companies by adding new perks on each upgrade. 45
These added benefits skew the dynamics within the organization of bodies and drastically affect the interests of various parties. Every Regulatory Body’s charter envisions all the members to follow and uphold the guidelines. Not following the charter would result in the revoking of membership. 46 Further, the Charters are subject to “material change” as desired by the body. 47
The concerning issue that arises is that certain bodies offer participation in the executive committee to the highest bracket of membership. 48 This severely impacts the powerplay dynamics of various organizations and their interests under the Regulatory Body.
Breach of the charter and its consequences
The charters set out rules and guidelines to be upheld and followed by the members. However, there is very little data to be found on the matter of the consequences of breach of the guidelines. The logical action to a breach would be to seek discontinuation of membership of the party who breaches the charter.
There also arises a need for enacting a procedure to deal with this matter systematically. However, no data for the process can be found within the FIFS and EGF portals. It is only the AIGF portal that clearly defines the consequences of the breach of the charter. 49 It states that the member must rectify the breach within a specific timeline from being served the notice. If compliance is not followed, it would result in revoking the membership of the individual, and the usage of the logo and seal of the body will be suspended.
General compliances
Every organization needs to follow certain compliances to function in the country. These compliances are usually industry-specific and explained by the statutes governing each sector. These compliances for the gaming industry are specified under the IT Rules 2023. 50 The current model of rules presents certain gaps and ambiguities that necessitate deliberate examination and the provision of clarity. However, these guidelines are just barely touched upon by the charters in a non-comprehensive manner. The FIFS and EGF do not delve into the topic of legal compliance but focus on the ethical duties of intermediaries in their charters. The AIGF briefly touches upon the certain main provisions that constitute the statutory requirement under the IT Rules, but does not delve into all the legal aspects. 51
Responsibilities of gamers
The EGF charter is the sole charter that delves into the responsibilities of the gamers while playing online Real Money Games. 52 This is an important aspect that requires a wide range of awareness to make these charters effective. Responsible gaming from the users will act as the strongest motivator for the Government to support these self-regulatory mechanisms. The awareness among the gamers will create a more accountable mechanism where the gaming intermediaries will be answerable to the queries of its users.
A self-assessment test model has been introduced to the Indian gaming sector by EGIF. This assessment examines the patterns shown by gamers and underscores the potential consequences of an imbalance arising from excessive gaming, which may manifest as addictive behavior and a form of gambling. A campaign is also run simultaneously with this program to promote this model in the form of an online campaign called “Bano Asli Gamer” using celebrity icons such as cricketer Shubhman Gill and Indian rapper Naezy. 53
Legality
The legal compliances of intermediaries are essential to be highlighted in defining the standards upon which each intermediary must operate. The most essential compliance for these companies is to restrict their platform only to games of skills. 54 These platforms are denied from promoting games of chance to ensure that the outcome of the competitions hosted is based upon the skill of the user, which is to be utilized while playing the game. 55
The AIGF charter allows only Indian users to compete with each other on the platform. 56 It is essential for companies to develop a mechanism to restrict the usage of the app in States that ban Real Money Games. 57 This mechanism is termed as “Geo-Blocking Mechanism.” For instance, Dream 11 restricted the usage of its app in Karnataka, Telangana, and other States, which banned online gaming. It kept the app partially functional, where users could participate in competitions that do not involve money while restricting the competitions that had a monetary aspect involved.
The FIFS charter is oriented to only deal with online fantasy gaming. It defines standards that companies need to comply with while offering fantasy games. It allows competitions on real-world sports competitions that are officially sanctioned by the respective authorizing entities on international, national, and state associations. 58 The intermediaries are to set guidelines that the team made by the users must be at par with the number of players officially playing the match for one team, and it must offer players to pick for the team from both the sides. 59 The users must manually make the teams and should not be auto-generated, and the platform is denied from participating against its users. There are also provisions that clarify that only users above the age of 18 can participate in these contests.
Another interesting aspect of the FIFS charter is that it denies any changes to be made on the team after the real-life contests have started. 60 This restriction, however, has become the Unique Selling Point for many platforms. Platforms such as Gamezy advertise its feature in that it allows the alteration of teams in the middle of the match in the second innings of a match. 61
Transparency and disclosure
This part of the charter emphasizes that the gaming intermediaries must have clearly defined terms and conditions and the mechanism of the competitions. 62 It also makes it compulsory for the companies to make the terms and conditions and other relevant information publicly accessible on their platforms.
The AIGF charter further safeguards the interests of the players by having a well-defined set of requirements that must be complied with by the intermediaries under this section. It includes provisions related to the personal information stored and the purpose of such storage; the users require compulsory affirmative action to accept the mechanisms set by the intermediary; compulsory notification of material changes to the terms, among other aspects. The FIFS charter has a relatively shorter provision but covers the same essence, followed by the AIGF charter.
Grievance redressal and ombudsman
The charter is designed with the intention of building trust in online gaming companies. Therefore, it is crucial to develop a redressal mechanism so that the grievances of the users are heard, and the functioning of the intermediaries is not just subject to checks by the Self-Regulating Organizations (SROs). The 2023 Intermediary Guidelines lay down a provision guiding all intermediaries to build this mechanism and also publish the details of the grievance officer on their portals. 63
The AIGF charter lays down a well-defined grievance redressal mechanism that covers almost all aspects of the 2023 Intermediary Guidelines. It covers aspects such as the timelines for dealing with complaints, procedures, and qualification of the grievance officer, among other related aspects. 64 It also contains a provision for appointing an Ombudsman who can be approached in a situation where an individual is not satisfied with the actions of the redressal officer. 65 The FIFS charter, however, is silent on grievance redressal mechanisms.
No bot and random number generator certifications
The AIGF charter introduces a provision under general compliances of its charter that companies must obtain a no bot and a random number generator certification. 66 This provision has a resemblance to Section 4 A (c) of the draft notification of the amendment to IT Rules 2021 for Online Gaming. 67 However, this provision was omitted from the final published IT Rules 2023.
According to the Oxford Dictionary, a bot is a computer program that performs a particular task again and again. 68 It is essentially a computer program that can mimic the actions of a user and pretend to be an individual. Therefore, bots in a gaming server can lead to users competing against a computer instead of other users, thereby essentially destroying the player-versus-player concept thereby competing against the platform, that is not allowed. 69 Since Real Money Games involve funds, it can also be considered fraud. Thus, it is necessary to prevent bots on these platforms to protect the interests of the users.
According to Collins, a random number generator is a piece of computer software used to create a sequence of random numbers. 70 This certification for intermediaries clarifies that the users an individual competes against are chosen at random to make the competition fair.
The charter stipulates that companies must comply with this requirement by securing a certification from “reputable entities.” 71 However, this provision raises concerns related to building trust, primarily due to the lack of specific compliance criteria. The sole criterion of being “reputed” can be highly subjective and may lead to confusion regarding which organizations qualify to issue this certification. Another significant consideration is the cost associated with obtaining such certification.
For instance, the Rummyculture platform, operating under Gameskraft, obtained a “no bot” certification from iTech Labs, an organization based in the United Kingdom. 72 Similarly, the website Zupee acquired its “no bot” certification from the same organization. 73 Interestingly, there is a notable absence of information in the public domain about Indian-based companies pursuing these certifications. Consequently, while these safeguards are undoubtedly essential, there is a pressing need to explore more cost-effective and accessible alternatives to ensure their implementation.
CONCLUSION
In conclusion, the gaming industry in India is currently facing a series of challenges that are affecting its viability and competitiveness on the global stage. The sector, once seen as a “sunrise sector” with potential for exponential growth and self-reliance, is now grappling with questions about its survival. The industry has been historically plagued by misconceptions, particularly the association with gambling. These misconceptions have resulted in regulatory decisions that have not always aligned with the sector’s unique characteristics. A recent regulatory development, which involves taxing the industry at the highest GST bracket of 28%, has added to these concerns. This tax, along with the existing 30% TDS, has made the industry less attractive for both companies and users, leading to a loss of confidence among its stakeholders.
To address these challenges, the industry needs a regulatory approach that focuses on providing legal clarity and building trust. One way to achieve this is by developing a comprehensive ethics code specific to the gaming sector, similar to the ethics code for social media intermediaries. This code should standardize rules and enforcement, ensuring that all industry stakeholders adhere to a common set of guidelines and face clear penalties for non-compliance.
Analyzing the existing self-regulatory charters within the Indian gaming industry reveals some disparities and limitations. These charters, offered by bodies such as the AIGF, EGF, and FIFS, have varying membership structures and benefits, which may create imbalances within the organizations. Additionally, the consequences for breaching the charters are often vaguely defined, and legal compliance is briefly covered.
Responsibilities of gamers, legal compliance, transparency, disclosure, and grievance redressal mechanisms are all critical aspects of building trust within the gaming industry. Standardizing these aspects through a robust ethics code will help ensure a fair, transparent, and accountable gaming environment. Building trust is paramount to secure the sustainable growth and competitiveness of the Indian gaming industry.