Taxing online gaming: India must craft policies suited for digital age

online gaming regulation in india
In a quest for clarity and growth, India's online gaming industry wants the government to introduce global best practices in its regulatory regime.

The decision by the GST Council to impose 28% percent tax on online gaming, horse racing, and casinos has ignited a heated debate in India. While on the surface, this taxation policy may seem straightforward, it warrants a deeper analysis in light of the changing dynamics of Indian society, the potential consequences of imposing such high taxes, and the nuances that differentiate gaming from gambling.

Societies have historically evolved in response to technological advancements and sociological developments. Each generation brings its unique values, preferences, and behaviours, demanding careful consideration from policymakers. In the 21st century, the rise of the digital age and the proliferation of technology have significantly transformed how younger generations interact, learn, and entertain themselves. This fundamental shift in societal behaviour necessitates policy approaches that reflect these changes and align with the aspirations of the modern Indian demographic.

Gaming, once regarded as a simple form of recreation, has evolved into a multifaceted platform with far-reaching positive applications. It extends beyond entertainment to encompass educational, recreational, and skill-building components. Gamification techniques are being used to enhance educational experiences, promote financial literacy, encourage e-governance initiatives, and facilitate personalised health services. Recognising these broader applications is crucial when considering the role of gaming in Indian society.

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Online gaming vs gambling

While the intention behind imposing high taxes on online gaming may be to discourage its perceived negative aspects, such a move can have unintended consequences. High taxes could lead Indian gamers to explore international platforms with more favourable tax environments, or even push the industry into regulatory gray areas. Rather than stifling growth, a more nuanced approach to taxation could help nurture the Indian gaming industry and position the country as a global leader, in line with the vision of Digital India.

It is essential to draw a clear distinction between gaming and gambling. While they may share some superficial similarities, they serve fundamentally different purposes and entail distinct levels of player engagement and risks. Gaming is a broad spectrum of activities that promote personal growth, problem-solving, and skill acquisition, making it a valuable part of modern culture.

Rather than resorting solely to high taxation, policymakers should consider comprehensive strategies that promote responsible gaming practices. These strategies might include the development of regulatory frameworks, public awareness campaigns, and educational initiatives. Such measures empower gamers to make informed choices, protecting vulnerable individuals while preserving the positive aspects of gaming.

High taxation rates alone have historically proven ineffective at deterring addictive behaviours, as witnessed in the case of smoking and alcohol consumption. Additionally, relying on increased tax revenue to improve public health infrastructure is problematic, given the current inadequacy of healthcare facilities across the country. High taxes may deter investment, limit access to quality gaming content, and encourage the emergence of an unregulated underground market. This could undermine trust and responsible gaming practices, contrary to the intended objectives of policymakers.

As we navigate the complex terrain of online gaming taxation in India, we must recognise the profound societal changes driven by the digital age. Policymakers must adopt a balanced, forward-thinking approach that takes into account both the economic and social implications of their decisions. It is not merely about taxing online gaming; it is about crafting policies that align with the evolving fabric of Indian society and harness the opportunities presented by the digital age.

In this context, the ongoing debate surrounding online gaming taxation reflects the broader challenge of adapting policy-making to the complexities of the digital era, where morality and practicality must harmoniously coexist. Policymakers should consider strategies beyond high taxes, focusing on responsible gaming practices and comprehensive frameworks that cater to the changing digital landscape.

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Srinath Sridharan is a strategic counsel with 25 years experience with leading corporates across diverse sectors including automobiles, e-commerce, advertising and financial services. He understands and ideates on intersection of finance, digital, contextual-finance, consumer, mobility, Urban transformation, and ESG. Actively engaged across growth policy conversations and public policy issues.