By Dhruv Garg
One of the grand successes of the digital India campaign and the ‘Make in India’ initiative has been the rapid burgeoning of homegrown online gaming industry. India’s online games industry, which has been spurred on by the widespread adoption of mobile phones and internet usage, is presently valued at about $2.5 billion and is expected to double in valuation by 2025. According to industry estimates, the online games sector has the potential to provide lakh jobs in the next couple of years. This is an industry that has withstood the vagaries of a global pandemic, and an ongoing economic downturn. Yet, it faces a glaring problem: the regulatory uncertainty around distinguishing between games of skill and games of chance.
The distinction between games of skill and games of chance has been well established by Indian courts since the 1957 Supreme Court ruling in R.M.D. Chamarbaugwala vs. The Union of India. Based on these rulings, games of skill are considered legitimate business activities, the protection of which is guaranteed by the fundamental right to freedom of trade under Article 19(1)(g) of the Constitution. Games of chance on the other hand are typically considered to fall within the ambit of gambling and betting activities and are not offered any such protections, and state governments are free to regulate or ban such games. While courts have recognised this distinction, and have established that games, where the element of skill dominates over the element of chance, are protected activities, regulations have failed to do so. This has consequently created a host of issues for the online skill gaming industry, which could simply be resolved if a centralised and uniform regulation chose to account for this distinction.
In the past, state governments including the governments of Karnataka, Kerala, and Tamil Nadu had sought to ban online skill games, confusing them with gambling. High Courts have overturned these bans, upholding the distinction between games of chance and games of skill, and recognising that the regulatory ambit of state governments is limited to games of chance, as set out under Entry 34 of the State List in the Indian Constitution. Yet, state bans on games of skill have resulted in a wholly unnecessary fragmentation of the skill games sector across the country. Similarly, the lack of legislative clarity on the difference between games of chance and games of skill has resulted in erroneous GST calculations for the skill gaming industry. Instead of taxing the service fee charged for playing online skill games at the rate of 18% on platform fee (like any other online service), GST is being proposed to be calculated at 28% of the whole contest entry amount (akin to the calculation for betting and gambling bodies), a calculation that threatens to cripple the industry.
Many of the troubles facing the online skill games industry can be easily resolved with the aid of centralised regulation that recognises the difference between online games of chance and games of skill. While news reports seem to suggest that certain section of the government believes that such a distinction is one that is not clear or easy to make. This is not, in fact, accurate. The Supreme Court has already laid down clear tests that can aid any regulatory organisation in assessing what constitutes a game of skill. The primary test has been the predominance of skill test, where skill plays a larger role than chance in the achievement of a successful outcome. In determining what constitutes ‘skill’ courts have also laid down several ‘skill elements’ including knowledge, experience, expertise, attention, adroitness, and dexterity, among others. The predominance of skill test, combined with an understanding of what various skill elements can be, provide an unchallenging mechanism for assessing if a game is one of skill.
The tests that have been evolved by decades of jurisprudence provide a guiding light for regulatory interventions in relation to the online gaming industry. Already, self-regulatory organisations in the country are using this jurisprudence to self-regulate online skill game platforms. If central regulation recognises a similar self-regulatory model with a government oversight body for games of skill, the framework can then simply implement the tests laid down by the courts of India, in making its assessment of the game.
Regulatory recognition of the difference between games of chance and games of skill will go a long way in ensuring the well-being of the skill games industry, creating the certainty required for the industry to flourish.
The author is a Delhi-based lawyer with a practice in technology law and policy