The growth of the online gaming industry and the new taxation regime have shone a light on the games of skill versus games of chance debate yet again. The arguments unfurling highlight the pressing need to differentiate between the two.
In many jurisdictions around the world, games of skill are often considered distinct from gambling activities, and may not be regulated as strictly.
However, the recent GST amendments have imposed a uniform rate of 28% on the face value of all bets placed in online games or gambling activities. Thereby, approaching both games of skill and chance with similar restrictions.
Additionally, the rules released by the Ministry of Electronics and Information Technology (MeitY) under the IT Amendment Act (2023) had termed online gaming platforms as intermediaries which have also burdened them with additional compliance costs and subjected them to regulate gambling or wagering activities on their platforms.
The MeitY rules aim to restrict online gambling and wagering activities, wherein wagering on outcome or chance is not allowed.
However, the users can still play real money games online by making cash or kind deposits and expecting returns on these deposits. Thus, a blurry line between skills and chance in online gaming has given rise to many legal debates demanding better taxation and regulations to encourage skills-based online gaming.
The rise and recognition of Esports and fantasy sports have further highlighted how competitive video games heavily rely on skills, experience, and knowledge aspects and not just on gambling. The shift of e-sports or e-games from gaming consoles to mobiles has led to a surge in platform users.
Especially, in India the growth of users has been rapid due to the availability and accessibility of smartphones and low-price internet. As an outcome, the increased number of online gaming platform users has thrown up concerns for society which include addiction, overspending, and misuse.
Further, such concerns have been exacerbated as the online versions of gambling and wagering activities have come up compared to earlier times in India when wagering was restricted to a premise requiring a license to host such activities.
Considering the surge in the number of online gaming and gambling platforms the MeiTY rules clearly prohibit online gaming intermediaries from hosting games that are not verified as permissible. Thus, the rules make gambling or wagering activities via e-platforms with unpredictable outcomes as non-permissible.
Now, the challenge arises that many online games that require the use of skills, knowledge, experience expertise, and critical thinking abilities of the player also involve the use of real money for deposits.
Currently, India has over 400 gaming companies and a staggering 420 million online gamers expected to reach 700 million by 2025. These numbers point to the prospective growth opportunities for the e-gaming industry in India and the compelling need to distinguish games of skill such as chess, rummy, and Dota 2 from games of chance. Thereby bringing games of skills played using real money under the permissible category.
Thus, the parameters for distinguishing are to value whether the outcome is skill-based or of chance, or whether there is a possibility of any manipulation by the developer or by the gaming platform. Most importantly, the parameters hold the potential to address the blurry line between skills-based fantasy and predictable e-games that involve wagering but are not played on sheer chance. These can be some fundamentals to develop the parameters distinguishing the two.