Southern States Want To Ban Online Gaming But Regulation May Work Better
Suicides due to loss of money, addiction, risk to public order have underscored the dire need to regulate online gaming.
As online gaming companies await the word of the GST Group of Ministers on rate and levy mechanism, the industry continues to face pushback from familiar quarters.
As many as five southern states have either promulgated bans or expressed intention to prohibit certain online games within their boundaries. The latest was the ordinance passed in the Tamil Nadu Assembly in September, seeking a bar online games with stakes.
The state governments see online gaming as a social menace rather than entertainment. More so because of suicides and debt traps linked to gaming addiction.
States acting in consideration of public morality has led to these legislative actions, according to Arun Prabhu, partner, Cyril Amarchand Mangaldas. "This (states' response) has largely been a response to public sentiment... it is certainly an emotionally charged issue," he told BQ Prime.
The States Pushing Back
Telangana was the first to promulgate an official ban on online gambling and betting as early as 2017.
Andhra Pradesh Chief Minister YS Jagan Mohan Reddy had called for a ban on online gaming in a letter to the information technology & telecom minister. The state assembly passed a law to this effect in December 2020.
In 2021, the AIADMK regime in Tamil Nadu amended laws to ban online gaming that involved monetary stakes but the move was struck down by the Madras High Court. The state passed the latest ordinance after it challenged the high court order in the Supreme Court.
Last year, Kerala tried to enforce a ban on online rummy, while Karnataka amended its Police Act and moved towards banning betting and wagering in online games. However, both the laws were struck down by their respective high courts.
If anything, the consistent efforts by these states, social concerns linked to suicides after loss of money, severe addiction and risk to public order underscore for regulation, if not an outright ban.
The key test which holds relevance in examining the legal correctness of the laws, will be their classification as either 'games of skill' and 'games of chance', according to Supreme Court Advocate Tarun Jain.
The debate on the differential treatment for 'games of skill' and 'games of chance' is a well established demand in the industry.
Games of chance would be covered under gambling which the states have full authority over. But games of skill would fall outside the purview of the states to exercise any legal control over.Tarun Jain, Advocate Supreme Court
In a mixed case like rummy or poker, the degree of dominance of skill and chance will weigh the extent of control the state can exercise, Jain said.
Any taxation action from the GST front also awaits the GoM's guidelines on classification of 'games of skill' and 'games of chance' as the industry is batting for differential treatment.
T R Venkateswaran, partner, Price Waterhouse & Co., said the decision of the GoM will fuel the debate on games of skill and chance, on principal, taxation would be secondary to the legality in the respective states. But a taxation via GST will not necessarily legalise online gaming, he said.
The GST law will not define how online gaming should be regulated and will only be enforced where it is legal, he told BQ Prime.
The constitutional right to carry on a profession or trade will also apply to a skill-based game, furthering its case against a regulatory ban, he said.
What May Work
The need of the hour would be a well-thought out regulation, according to Abhishek Rastogi, partner at Khaitan & Co.
A blanket ban could spur illegal means. There is a necessity for a regulatory framework that would first define what are games of skill and games of chance, Rastogi added. "The need is to enforce a central regulatory code that would be applicable in all states."
The impact of this issue would be of global relevance as it would determine if Indian service providers remain in the country.
The global online gaming revenue could grow from about $38 billion in 2019 to $122 billion by 2025, the report said, according to a recent EY report. The domestic online gaming industry has the potential to scale quickly and become a meaningful contributor.
The domestic market is estimated to grow from $906 million in 2019 to over $2 billion in 2023 at an annualised rate of about 22% .
While banning is hypothetically possible, whether it is a realistic solution is the larger question, Prabhu said.
"Regulation would be tricky but not impossible," he added. "There needs to be a clear distinction on what is permissible, identification of problematic practices and a clear set of rules."