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Omicron has turned its game on in India, but online games in India have also taken the form of an epidemic. The online gaming industry across India is growing at an extraordinary rate. It has offered a wide variety of avenues for on-demand, real-time gameplay without any time or physical constraints. The Covid pandemic and the resultant lockdown, internet access, and surge in ‘smartphones’ have aided the growth of online gaming.
As of 2021, the online gaming industry is valued at around $900 million. But projections estimate its value will rise to a phenomenal $112 billion by 2025. This would suggest an overhaul of existing online gaming regulations is required, especially for online gambling activities. Considered the fourth largest sub-sector in Media and Entertainment in 2020, this industry is expected to generate INR100 billion of economic value between 2020 and 2025. There are over 400 gaming startups in India.
The differentiation between gambling and chance/skill impacts the Tax implications. A game of chance translates to betting or gambling activities and attracts a higher GST rate of tax vis-à-vis a game of skill. Therefore, the online games being offered by industry players shall qualify as a game of skill and thus, legal in India. Under Section 115BB of the Income Tax Act, which is a provision for income that is earned through online games and is under the category of ‘Income From Other Sources' while filing IT returns, all winnings from card games, betting and gambling are taxed at a rate of 30 percent excluding cess. This regressive taxation may result in making the business unsustainable in India.
Money is involved in online games in three ways. First, in registration wherein people are asked to pay a stipulated fee. Second, the prize money pool, ie, people playing the game put money in this pool, and then the person who wins the game gets all the prize money. Thirdly, from advertisements. It is in the first and third cases money is taxed. According to reports, the government may now impose a single tax on online gaming. At present, two different types of taxes are levied on them. Games that are based on skills are taxed at 18 percent and those in which people try their luck, like Ludo, Poker, or Rummy are taxed at 28 percent. Although gaming companies insist that both are skill-based games, in reality how skill can be to throw dice, throw cards or press different buttons on a mobile phone quickly, etc cannot be assessed. But companies fear that if the government implements the single tax system, then both types of games might be taxed at 28%, which will reduce their earnings.
But the problem is not just about money or taxes. Rather, it is also that children get addicted to online gaming, even adults and those who play games, whether in school or in the office, want to play games all the time. In a survey conducted in India last year, 65 percent of children under the age of 20 believed that they are ready to give up food and sleep to play online games. And many children are even ready to steal their parents' money for this. This problem of gaming addiction is not only in India. In a survey conducted in the UK last year, one in every 6 children admitted that they stole their parents' money to play the game.
The need of the hour is to regulate online games as it has the potential to propel a second software revolution. State governments should introduce exclusive policies to regulate online games instead of resorting to a blanket ban as such prohibitions will only boost illegal gaming activities in the country.
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