Online Gaming Rules: Experts Call for Clarity On Wagering, Harm
Experts raise concerns about multiple self-regulatory bodies for online gaming and anticipate forum shopping by platforms.
Even after a detailed consultative process, the recently notified rules for the online gaming industry have several gaps that could create challenges for such platforms. The new rules codify the draft proposal for self-regulation by registered bodies and stringent knowledge of your customers requirements. But leave concepts like wagering and harm to interpretation.
The online gaming industry has been allowed to establish self-regulatory bodies for oversight. The SRBs will be allowed to make a distinction between permissible online real-money games and games that involve ‘wagering on the outcome'.
While the latter has been specifically barred, the rules do not provide clarity as to what constitutes wagering and have left it to the discretion of these SRBs. This could create complications for games that involve even a minimal level of chance, according to experts.
The legislature hasn't clearly spelled out whether or not a deposit or investment to play online real money games involving a minimal element of chance will also be considered wagering or not, says Gaurav Bhalla, partner at Ahlawat and Associates.
This means that games such as rummy, involving a dominant element of skill and some element of chance, could have a tough time overcoming this legislative requirement. If the interpretation of the statute is taken in its strict sense, ideally all games that involve an element of chance could fall foul of this provision.Gaurav Bhalla, Partner, Ahlawat and Associates
Clarity is also required on several other, broader terms that are part of the rules.
The rules require SRBs to provide safeguards against any harm that could be caused by an online gaming platform. Platforms have been tasked with ensuring that they do not host any online games that cause harm to users. Harm has been defined to mean self-harm, psychological harm, or harm to a child.
‘Harm, caused by an online game', is one of the key considerations that can affect the verification of a permissible online game. This remains largely ambiguous, said Nikhil Narendran, partner at Trilegal.
It's unclear if it will include financial harm. To Narendran, it is unlikely that financial loss forms part of the definition.
Given that there are checks and balances on spending and other due diligence measures, it will be a tall claim for a user to allege harm if she merely suffers a financial loss, as financial loss is part and parcel of real money games, and she has signed up for it on her own volition.Nikhil Narendran, Partner, Trilegal
Besides the lack of clarity on wagering and harm, which the SRBs have been tasked to determine, experts also point to an absence of specificity in the functioning of these bodies.
The rules allow for the setting up of multiple SRBs tasked with verifying online real-money games. It is unclear if there can be multiple SRBs for verification of a single kind of game or whether each SRB would be tasked with a particular category of game.
If the situation allows for multiple SRBs for a single kind of game, there is a high chance for the establishment of business-friendly SRBs and the possibility of forum shopping, suggest experts.
The existence of multiple SRBs can very well lead to online intermediaries forum shopping for the most suitable SRB for their online real money game. This decision would most likely be influenced by the procedure adopted by an SRB for verification, the fees chargeable by them, and the rate of successful verification by an SRB.Gaurav Bhalla, Partner, Ahlawat and Associates
Tax Implications
The rules provide no resolution to the ‘game of skill versus ‘game of chance’ debate, which determines indirect tax consequences. Broadly, games of skill don't attract the Goods and Services Tax, while games of chance do.
However, the fact that the new rules make a distinction between games that involve wagering and permissible real-money games could be useful to ascertain tax outcomes, according to Asish Philip Abraham, partner at Lakshmikumaran and Sridharan.
"This determination, to be made by SRBs, although not binding on the GST department, can have a persuasive effect on the decision of the GST department to levy taxes on a particular game," he said.