By Aruna Sharma
With over 750 million smartphones in use, India is undergoing a significant shift from traditional physical gaming to internet and mobile-based gaming platforms. As this digital transformation unfolds, some groups have expressed concerns about allowing games involving monetary transactions to be classified as e-sports. However, for some games that involve payment, the judiciary has consistently distinguished them from gambling (regulated under The Public Gambling Act of 1867 and the Indian Penal Code, which require state licenses) by recognizing them as ‘games of skill.’ For example, in 2021, the supreme court dismissed a Special Leave Petition (SLP) that alleged that the Online Fantasy Sports (OFS) format offered by a company amounted to gambling, wagering and betting and is not a ‘game of skill’. This distinction has been upheld by various High Courts and the Supreme Court, affirming the legitimacy of skill-based gaming. Similarly, the online game of rummy was also allowed to be considered as a game of skill.
The central government, through the Ministry of Information Technology (MeitY), has already taken steps by issuing rules that define what constitutes ‘permissible games’ and can be considered under games of skill. While this is a significant move, there is still a long way to go. The next critical step is to clearly define the parameters that differentiate a ‘game of skill’ from a ‘game of chance.’ Both types of games are popular on digital platforms, involve payments, and have winners. But understanding these distinctions is essential for ensuring regulatory clarity and maintaining a fair gaming environment.
Here are critical broad areas that need to be addressed before defining games of skill:
Content regulation: One of the most important step would be ensuring that content complies with permissible standards, such as avoiding illegal activities like child abuse. MeitY, under the IT Act 2000, has the authority to remove content that violates these standards, safeguarding the integrity of gaming platforms.
Outcome integrity: A key aspect of ‘games of skill’ is that their outcomes are determined by the player’s knowledge and analytical abilities, not by chance or platform manipulation. This distinction must be clearly defined, particularly for fantasy games, which rely on players’ expertise in predicting outcomes. The continuous honing of a player’s skills is a testament to the legitimacy and fairness of these games. The judiciary has repeatedly affirmed that these games fall outside the purview of gambling laws, and this should now be accepted as settled law, with appropriate regulations applied.
Self-regulatory organisations (SROs): While the formation of SROs by industry peer groups is a positive development, more responsibilities need to be assigned to them. These organisations can establish and monitor standards, educate both the public and industry stakeholders, and address any deviations from established norms. This self-regulation will ensure that the industry continues to grow responsibly.
Consistency across platforms: The rules defining a ‘game of skill’ should be consistent, whether the game is played physically or online. For example, horse racing, recognized as a ‘game of skill,’ should be regulated similarly whether it’s conducted on a racetrack or an e-platform. Skill-based games should not be subject to control or predetermined outcomes, whether played individually or in groups. Moreover, skill games retain their integrity and do not morph into games of chance simply by moving online. Simulation exercises can be used to demonstrate the consistent application of skill in both offline and online gaming environments.
After defining the broad areas, the following criterias can be used to define the skill-based games.
Key criteria for distinguishing skill-based games:
Performance consistency: Experienced players consistently outperform less-experienced ones, indicating a strong correlation between experience and skill.
Experience and success: Players with more experience generally have higher win percentages, highlighting the link between experience and skill enhancement.
Skill improvement: Players tend to improve their skills over time, leading to more wins and a higher winning percentage.
Sensory-motor control: Key aspects like hand-eye coordination, balance, reaction time, and the proficient use of input devices are critical.
Cognition: Strategic planning, memory retention, problem-solving skills, and effective management of game challenges are essential cognitive aspects that determine a player’s skill level.
Social competence: Collaboration, empathy, and teamwork in cooperative games are indicators of a higher skill level.
Personal competence: Self-awareness, self-critique, and effective energy management are vital for excelling in skill-based games.
Media literacy: Understanding game mechanics, optimizing gaming devices, and effectively communicating within the game can significantly impact performance.
Tamper-proof: Online gaming is built on secure algorithms and software, making it resistant to tampering and ensuring fair play.
Gaming laboratories: Establishing gaming laboratories for simulation exercises can scientifically validate the skill/chance element in games, ensuring regulatory compliance and industry growth.
The differentiation in games of skill and games of chance also needs to be addressed via taxation policies.
Taxation policy – direct tax and GST
As the online gaming industry continues to grow, it’s important to have tax policies that support both the industry and country’s economy. There is a need to find a balance—ensuring that professional gamers contribute fairly to tax revenues while also fostering an environment where the industry can sustain. For example, the taxation should be on platform’s fee or developer’s fee, and not ‘money on the table’. To make it easier to differentiate the two, the government can mandate all the playing money to be deposited into an escrow account, which can be also used to make the payments back to the players.
Clear and fair tax rules will help the industry grow, encourage innovation, and keep India competitive in the global tech market. As gaming continues to evolve, so too must our tax policies, ensuring they remain fair, transparent, and supportive of this dynamic industry.
The author is practitioner development economist and retd Secretary, GoI
(Views expressed are the author’s own and not necessarily those of financialexpress.com)