The framework proposed by the Ministry of Electronics and Information Technology for online gaming is a good first step to bring the fast-growing industry under regulatory ambit. These games are proving to be a popular source of entertainment in the country with over 500 million users of whom 24 per cent deposit money and play.
It, therefore, becomes imperative that the gaming products are monitored to protect users and to stop them from getting swindled by fly-by-night operators. According to Lumikai’s annual State of India Gaming report, the market in India was worth $2.6 billion in FY22. The activity on these platforms therefore need to be supervised to ensure that due tax is paid on the income earned from the online games. The framework proposed by the Centre, when formalised, will also give greater regulatory clarity to the companies operating in this segment.
Some States including Tamil Nadu, Telangana and Karnataka had banned all forms of online gaming over the past year on concerns that these unregulated gaming platforms are promoting gambling, and pose a financial and physical threat to users. The bans were questioned on the ground that the States were not differentiating between skill-based and chance-based games. The States issued the ban based on their right to regulate chance-based gambling under the Public Gambling Act of 1857. The new rules have implicitly stated that only skill-based online games are permissible. The draft notification defines online games as internet games where a user deposits money with the expectation of earning winnings based on his/her performance in the game. The Minister of State, MeitY, further clarified that any game that allows betting on the outcome of the game is prohibited. This will come as a relief for online gaming companies as it implies that they can now operate across India, provided their products don’t involve betting on the outcome.
The proposed regulation tries to bring all online gaming companies, the products they offer, as well as the users under regulatory supervision. The rules provide that all intermediary platforms hosting the games and the online game producers should be registered with a self-regulatory body governing the industry. This body shall also assess all the games and filter those which are deemed unsafe or unfit. The registration obtained from the SRO has to be prominently displayed on gaming platforms so that users know that the products are safe. The platforms are also meant to disclose the policy regarding the distribution of winnings, refunds, measures to protect user funds and the risks of financial loss and addiction prominently on their gaming platforms. The requirement that the identity of all users should be verified by the gaming intermediary will ensure that the tax authorities can keep track of these earnings. Measures for grievance redressal and stipulations for appointment of compliance officers and nodal contact persons by the gaming platforms will aid users. Such clarity helps all stakeholders.