* The report stated that the treatment of the entire online gaming industry as a homogeneous industry and the conflation of online skill gaming with games of chance (or gambling) have stunted the growth of India’s online skill gaming industry.
India's online gaming sector, currently valued at USD 3.1 billion, has the potential to expand to a staggering USD 60 billion by 2034. However, challenges surrounding regulation and taxation persist. India stands out for its high tax rate, imposing a 28% Goods and Services Tax (GST) for all formats on the total deposits made by players. This practice stands in contrast with global practices that tax, regulate, define and distinguish Games of Skills from Games of Chance. Several countries further carve out Fantasy Sports as a distinct category within games of skill and regulate and tax them separately, according to the report “Path Ahead for Online Skill Gaming in India: Unpacking Global Standards for Regulating and Taxing Online Skill Gaming” by the United States India Strategic Partnership Forum (USISPF) and TMT Law Practice. The report highlights the regulatory frameworks and taxation policies in 12 key gaming markets, including the U.S., Germany, the U.K., Denmark, and Belgium. The report also highlighted that the United Nations Central Product Classification (UN CPC), which forms the basis for taxation in domestic jurisdictions globally, defines online gaming separately from online gambling.
The UNCPC is a globally recognized system that ensures consistent classification of products, including online games and online gambling. Under UNCPC, online games (Entry 84391) and online gambling (Entry 96921 read with Entry 96929) are treated as mutually exclusive categories with no overlap. Online games include role-playing games (RPGs), strategy games, action games, and card games played on the internet even when played with entry fee or real money, excluding any form of gambling. Online gambling covers services like lotteries, lottos, off-track betting, and casino services. The report also notes that the North American Industry Classification System (NAICS) categorizes gambling separately from fantasy sports and skill-based games. For instance, Skillz US INC, which offers skill-based games, has a separate NAICS code compared to DraftKings, which offers fantasy sports games.
Key Global Insights:
The report reveals that all 12 countries have a separate legal definition for games of chance, ensuring a clear distinction from skill gaming formats. 8 of the 12 countries’ laws or the regulator, also define fantasy sports for distinct regulation and/ or taxation. Notably, skill-based games receive unique treatment in all the 12 countries, treating them as a separate, standalone category. The tax rates for skill-based games are generally lower than those for games of chance. Across all nations, skill-based games are taxed on platform fees or Gross Gaming Revenue (GGR), ranging from 2% to 25%. Within skill based games, fantasy sports are taxed higher than other games of skill owing to the difference in business models and format. This is similar to India’s previous GST regime, which taxed online skill gaming at 18% of platform fee, akin to other digital services. France has transitioned from taxing on total pooled amount to taxing on platform fee to align with international best practices and prevent users from migrating to illegal offshore platforms.
Additionally, skill-based games do not require permits, licenses or whitelisting and are largely unlicensed. Games of chance, on the other hand, are either illegal or licensed and regulated. Fantasy sports may also require permits or licenses from relevant authorities in 9 of the 12 jurisdictions studied, with exceptions being Romania, Brazil, and Germany. The findings highlight the regulatory approaches and tax structures in the global gaming industry, with significant differences depending on whether a game is classified as a game of chance, fantasy sports, or skill-based.
The report emphasizes that adopting platform revenue or the commission collected as the tax base is crucial not only for ensuring fair taxation but also for preventing the proliferation of unregulated, untaxed illegal offshore markets that could undermine both industry viability and government revenue. The report also advocates for a more nuanced approach to taxation in India. Aligning with global best practices could help mitigate the risks of over-taxation and support the sustainable growth of the online gaming sector. Such an approach should take into account that the online gaming sector is not homogenous and globally, it is subcategorized, taxed, and regulated on the basis of formats and not monetization models. This nuanced understanding of the sector will unlock the growth of the industry and provide highest GST revenue in the long run. The report concluded that there is an urgent need to distinguish between games of skill and games of chance and to tax the skill-based online gaming sector based on platform fees in line with the global benchmarks.
“The US has been a significant contributor to India's gaming sector, with $1.7 billion out of the total $2.5 billion in foreign direct investment (FDI) coming from the US alone. This reflects the immense confidence global investors have in India’s rapidly growing gaming market, which is projected to become a $60 billion opportunity by 2034. Notably, 90% of this FDI is in the pay-to-play segment, which also accounts for 85% of the sector's overall valuation. With a large consumer base of over 600 million gamers, this space is rapidly being monetized and presents a substantial export opportunity. However, for Indian companies to compete on a global stage, we need a level playing field with progressive tax and regulatory policies that align with international standards. Our benchmarking of global gaming markets reveals how other countries have segmented, defined, taxed, and regulated the gaming industry based on formats. It is clear that, globally, there is a distinct separation between games of skill and games of chance, with skill-based games often receiving conducive treatment. Moreover, even within skill-based games, further differentiation is made to ensure appropriate regulatory frameworks that cater to separate business models. Sharing these insights will help ensure India’s gaming industry reaches its full potential while maintaining investor confidence,” said Dr. Mukesh Aghi, President and CEO, USISPF.
"India's current approach to taxing and regulating online gaming under a one-size-fits-all framework poses significant challenges for the industry’s growth. By conflating skill-based games with games of chance, we are stifling innovation and international competitiveness. A more nuanced regulatory and taxation regime, similar to those adopted in global markets, would not only provide clarity but also foster sustainable growth in the online gaming sector. It’s imperative that India aligns its policies with international best practices to fully unlock the sector’s potential and attract more global investment," said Abhishek Malhotra, partner, TMT Law Practice.
About the US-India Strategic Partnership Forum (USISPF): The US-India Strategic Partnership Forum (USISPF) is committed to creating the most powerful partnership between the United States and India. As the only independent not-for-profit institution dedicated to strengthening the US-India partnership in Washington, D.C., and in New Delhi, USISPF is the trusted partner for businesses, non-profit organizations, the diaspora, and the governments of India and the United States.
About TMT Law Practice: TMT Law Practice is a leading law firm specializing in the dynamic and rapidly evolving Technology, Media, and Telecommunications (TMT) sectors. Renowned for its deep expertise, the firm provides comprehensive legal solutions tailored to emerging industries such as Online Gaming, Cybersecurity, IoT, and AI.
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