Navigating India's Gambling Landscape: From Past Legislation to Modern Challenges

The imposition of a 28% goods and services tax (GST) in India has significantly hindered the growth of the country's gambling market. However, the industry is actively opposing this measure and seeking relief through legal channels. The question arises: Can India reverse the situation of high taxation in the gambling industry?

To address this question, let's journey back to 1867 when the Public Gaming Act was enacted in India. This legislation imposed stringent regulations on certain forms of gambling, legalizing lotteries and horse racing but prohibiting the operation of public gambling establishments. Violators faced hefty fines, reflecting the stringent stance of the law.

It's evident that the legislation of 1867 could not foresee the emergence of online gaming. Consequently, the regulatory framework for real-time gaming remains uncertain, despite the anticipation of approval from both gambling enthusiasts and sports aficionados.

In recent years, there have been efforts to legalize online gambling and betting. In 2016, the Supreme Court supported calls for the legalization of betting, recognizing cricket's immense popularity in India. Concurrently, the Nagaland government's special committee deliberated on the Nagaland Bill, which proposed regulations for online gambling, particularly online skill games, in the country.

These developments indicate a shift towards modernizing India's approach to gambling regulation, acknowledging the evolving landscape of gaming platforms. However, the challenge lies in reconciling traditional legislation with contemporary forms of gambling, such as online platforms. The resolution of this issue will likely require a balanced approach that addresses societal concerns while fostering innovation in the gambling industry. 

Definition of Online Gambling

The Nagaland Bill, signed into law in April 2016 by the state Governor P. B. Acharya, marked a significant milestone in the regulation of online gaming, primarily at the state level in India. Presently, there is a concerted effort to categorize online games into distinct classifications.

Online games of skill entail placing bets where winnings depend on the skill of the player rather than chance. Games like rummy, established as games of skill in 1968, fall under this category. Conversely, the term "gambling" encompasses other forms of legal gambling in India.

The clear differentiation between gambling and games of skill is crucial for the lawful operation of the industry within the country. This is where self-regulatory organizations (SROs) step in.

Under the amended IT Rule 2023, SROs were established to develop a collaborative regulatory framework with the Ministry of Information Technology. This partnership aims to empower industry bodies, alongside government regulators, to define and regulate gaming activities, ensuring flexibility and increased oversight.

According to economist and former Indian government official Dr. Aruna Sharma, "The self-regulatory organizations formed under the IT Rule 2023 have an important role to play in setting the defining parameters... towards responsible gaming."

SROs are mandated to establish structures enabling users to access information on harm prevention from gambling. Gaming companies must comply with Know Your Customer (KYC) checks, operate within India, and institute complaint redressal mechanisms.

While the online gaming market in India is steadily expanding, challenges in its development and transformation are inevitable.

The fairy tale ends: India's Gambling Industry Faces Grim Reality with 28% GST

The idyllic narrative surrounding India's gambling industry took a drastic turn with the introduction of a flat Goods and Services Tax (GST) of 28% on online gambling, casinos, and horse racing betting. This decision, announced by the GST Council of India in July last year, sent shockwaves through the industry, eliciting widespread outcry.

Industry bodies such as the All India Gaming Federation (AIGF) swiftly condemned the exorbitant tax rate, warning of its potential to stifle the growth of a regulated market. The validity of such criticism became evident when Operator Super Group, proprietor of renowned sportsbook brand Betway and online casino brand Spin, exited the Indian market in October in direct response to the GST announcement.

Ravindra Shinde, CEO of Dyutabhumi Hotel and Resorts, echoes these sentiments, deeming the tax rate excessively high, particularly when juxtaposed with rates in other nations. "This is why international operators are generally not interested in investing in India in the gaming sector," Shinde explains, "as the government imposes very high taxes compared to gambling taxes in Singapore, Macau, and other Asian countries."

For online operators and horse betting, GST is levied on the total value of the placed bet, rather than on gross gaming revenue (GGR). Conversely, land-based operators are subject to tax based on the face value of chips purchased at each establishment.

Shinde asserts that a reduction in the tax rate is imperative for the growth of India's gambling industry. "Currently, the 28% rate is unaffordable for international operators," he observes, highlighting the potential profitability of the Indian gambling business should the government opt to lower taxes.

As the glittering facade of the gambling industry fades, stakeholders eagerly await potential revisions to the tax regime in hopes of a brighter future. 

Money, Money, and More Money: Challenges Facing India's Gambling Industry

Amidst the allure of profits, it's essential to recognize the detrimental impact of a thriving gambling industry on the country. Indian tax authorities are poised to introduce a staggering 28% Goods and Services Tax (GST) on online gaming operators, even retroactively, issuing show cause notices for alleged GST evasion dating back to 2018.

Local media reports reveal the staggering magnitude of these notices, amounting to a jaw-dropping £9.45 billion/€11.06 billion/$12.05 billion. This unprecedented development has sent shockwaves through the industry, leaving stakeholders reeling.

However, a glimmer of hope emerges with impending developments. According to Sharma, there's a ray of optimism on the horizon, as the Supreme Court is set to convene on April 2 for a crucial hearing. Should proceedings unfold favorably, the GST rate could face a robust challenge in court, akin to previous challenges in State High Courts.

In January, media outlets reported on the Supreme Court's review of submissions from industry players like Head Digital Works and Games 24/7, contesting the 28% GST decision. The Central Government and the GST Council have been called upon to furnish their responses to these applications within a two-week timeframe, indicating a potential turning point in the ongoing legal battle.

As the gambling industry braces for these pivotal developments, the outcome of the Supreme Court hearing holds significant implications for its future trajectory in India.

What Lies Ahead for India's Gaming Sector?

Amidst the ongoing battle over GST, Sharma highlights the remarkable growth and development underway in the Indian gaming market. "Currently, the gambling market in India is flourishing," she notes, citing a surge in player numbers, gambling platforms, and the widespread availability of smartphones and the Internet.

Looking ahead to 2024, Sharma expresses optimism about the Indian online gaming market. She predicts a further surge in popularity, driven by the proliferation of smartphones, which constitute 60% of the hundred million mobile phones in India. This, she believes, will lead to a substantial expansion and consolidation of the user base.

However, looming over this promising outlook is the impending introduction of GST. "A 28% tax rate is exceedingly steep," remarks Shinde, echoing concerns shared by industry stakeholders. Indeed, the departure of Super Group and Bet365 from the Indian market underscores the profound impact of such high tax rates.

The battle against India's exorbitant GST tax has reached a critical juncture, with the 28% rate and its retrospective application facing challenges in the country's highest courts. It now falls on operating companies to advocate for a substantial reduction in the tax rate, recognizing the detrimental effect of such high taxes on investment and industry growth.

As the gaming sector navigates these challenges, the outcome of this legal battle will shape the future landscape of the Indian gaming industry.