“In poker, you never play your hand, you play the man sitting across from you,” said Daniel Craig’s portrayal of James Bond in Casino Royale. While Poker and Rummy are considered as games of skill in India, there have been conflicted opinions regarding the element of chance in both these games. The recent verdict of the Madras High Court announcing Rummy as a game of skill on November 9, 2023, thereby overturning the ban has started the conversation on a better differentiation of games of skill and games of chance. However, the existence of offshore gaming platforms in India has resulted in a dilemma for users of gaming platforms owing to the recent reforms in taxation in India. “The offshore entities have resulted in a loss of about Rs 250 crore annually in goods and service (GST) tax revenue. In addition, it causes user harm and is illegal in India. There should be a strict curb on the menace of offshore illegal gambling and betting platforms,” Roland Landers, CEO, All India Gaming Federation (AIGF), told BrandWagon Online.
According to a report by Think Change Forum, an independent think tank, the offshore sports betting platforms receive an estimated Rs 8,20,000 crore (approximately $100 billion) per annum in deposits and have been clocking a growth of 20% per annum in the last three years post the pandemic.
User Safety: The biggest concern!
Industry experts believe that user safety is the top concern of regulated entities and industry bodies. The ease of changing domain names and unique resource locators (URLs) for offshore entities, in addition to fraudulent activities and moving money outside of India, has the gaming fraternity worried. “The offshore entities have added games of skill such as fantasy sports, Rummy and Poker, among others, to their portfolio of gambling products, thereby increasing their chances of adding more customers. While Indian entities are paying 28% GST on full value as well as users paying 30% GST on their winnings either at the end of the year or during withdrawal, offshore betting entities are not required to pay taxes as these companies do not fall within the purview of the Indian government,” an industry expert on the condition of anonymity, stated.
Moreover, with the cricket fever taking over India with the Indian Premier League (IPL) and the forthcoming ICC T20 Men’s World Cup set to commence from June 1, 2024, the offshore entities have launched campaigns, claiming that they are exempted from taxes. Over 75 betting and gambling platforms have targeted the Indian demographic, persisting in their operations despite legal prohibitions. Furthermore, these companies have roped in actors and sports personalities as brand ambassadors. For instance, Ranbir Kapoor, Kiara Advani, Sanjay Dutt, Mithali Raj, Saina Nehwal, Varun Dhawan, Dinesh Karthik, Tamannaah Bhatia, and Nawazuddin have been appointed as brand ambassadors for platforms like Fairplay, Parimatch, Lotus365, and Mahadev, further increasing the appeal of offshore gaming entities within the Indian market.
India’s crackdown on gambling and betting platforms, as instructed by its exchange control regulations, had led offshore gambling entities to employ clandestine methods of moving money within the country as well as outside the country. According to the Think Change Forum report, funds are being channelled through mechanisms such as hawala or cryptocurrencies, posing a threat to the nation’s financial stability. In addition to that, these funds could be used to aid terrorist activities, undermining public order and national security. “Frequent incidents where users fall prey to deceptive practices. It is not uncommon to hear of cases where, following a substantial win, users find themselves abruptly blocked by the service provider, leaving them with no recourse but to accept their losses. Also, the lack of stringent data protection measures on these platforms puts users’ personal and financial information at significant risk,” Vinit Godara, co-founder and CEO, MyTeam11, highlighted.
According to recent media reports, a student in Hyderabad took his own life due to financial losses allegedly incurred from playing on an offshore gambling platform. The platform was reported as 1win. Another incident included a man hailing from Karnataka losing Rs 1 crore on an online betting app which led to his 23-year-old wife committing suicide, tired of constant harassment from creditors.
“Sucker Punching” gaming platforms
The offshore betting and gaming platforms have been a thorn in the flesh for gaming platforms in India. As per the Think Change Forum report, at a baseline estimated deposits of Rs 8,20,000 crore ($100 billion), being received from India, at the current goods and service tax (GST) rate of 28%, India is losing a GST collection worth Rs 2,29,600 crore, per annum. Additionally, tax deducted at source (TDS) on player earnings which are estimated to be 90% of post-GST deposits, adds to another Rs 1,59,408 crore in taxes, making the total tax loss stand at Rs 3,89,008 crore.
Moreover, despite best enforcement efforts, the illegal offshore betting industry, under the new GST regime, will continue to grow at 20% at the least, leading to a tax loss figure of Rs 6,72,205 crore by 2026, the report added. “Platforms registered within India are bound by stringent regulations designed to safeguard users. These include ensuring fair play and secure financial transactions. In contrast, offshore platforms do not adhere to these regulations that protect the users thus putting them at a huge risk. Moreover, these illegal offshore platforms divert revenue from Indian regulated gaming companies, impacting the domestic industry and potentially reducing tax revenues for the government,” Godara, added.
Industry experts believe that the regulated industry within India suffers due to the competition presented by offshore entities with no tax regulations being imposed on these entities. They further highlight that consumers are often lured by offerings of these platforms such as no tax deduction and sign-on bonuses, hurting the registered entities’ chances of retaining users and bringing new users on board. Furthermore, consumers claimed to have faced difficulty when it comes to differentiating between registered and unregistered entities, thus benefiting the offshore gaming entities.
The increase of taxation rate to 28% GST on full value from 18% on gross gaming revenue (GGR), as a result of the 50th and 51st GST council meeting’s impartial consensus, has further hurt the regulated entities in their attempt to ward off offshore gaming entities. Additionally, a 30% tax deducted at source (TDS) was levied while removing the earlier threshold of Rs 10,000, resulting in investors sending a plea to Prime Minister Narendra Modi. They highlighted that a high taxation rate would wipe out the entire online gaming fraternity.
Industry experts have voiced concerns over these entities operating in India without registering as well as their rampant advertising. Additionally, the MoS (Minister of State) Finance, Pankaj Chaudhary earlier stated that no overseas gaming companies had registered in India since October on December 5, 2023. While experts have suggested whitelisting regulated entities and blacklisting offshore gaming entities, it remains unclear how the government is going to regulate the space while safeguarding consumer interests.
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