“Financial Gaming Faces Its First Major Setback: A Pivotal New Year Awaits”

Mumbai: The upcoming New Year promises to be a pivotal moment for the landscape of money gaming in India. 2024 concluded on a somber note: GetMega, a company that secured over $20 million from institutional and angel investors to expand its operations and manage a large user base, has ceased operations. This incident serves as the first significant casualty of a burdensome GST and the uncertainty overshadowing the industry, as noted within gaming circles.

In a brief notification, the company alerted all its gamers that operations would cease as of December 31, affecting well-liked gaming offerings such as Mega Rummy and Mega Poker. “Your wallets will remain operational until January 15 for withdrawals, after which they will become inactive. We appreciate your participation in this journey. For any support, please contact our support team,” stated GetMega.

When approached by ET, Mayank Kumar Ram, one of GetMega’s co-founders, opted not to comment on the matter.

Aside from the 28% GST imposed on gamers’ total betting deposits, many in the industry, which has seen fierce growth since 2018, are facing stringent regulations.

Bharatiya Nyaya Sanhita (BNS), the newly enacted official criminal code that commenced on July 1, 2024, classifies ‘unauthorized betting or gambling’ as ‘petty organized crime’. With a few exceptions for games like Poker, Rummy, and Fantasy (which have been recognized as games of skill by some judicial systems), nearly all other games being offered by numerous platforms are technically deemed ‘unauthorized’. Previously, actions against gambling were regulated under various state laws. However, referring to section 112 of the BNS, “Whoever perpetrates any petty organized crime shall be punished with imprisonment for a period not less than one year but which may extend to seven years, and shall also be subject to a fine.” While the legislation has yet to be tested on money gaming enterprises, there exists an underlying concern that this provision could complicate matters for gaming businesses. A betting platform with numerous employees hosting ‘unauthorized games’ could fall under the definition of ‘organized’.

Jay Sayta, a technology and gaming attorney, confirmed this trend, stating, “Numerous gaming platforms are disguising themselves as skill games but provide formats that are largely based on betting or chance. Such games lack any legitimate backing from courts as being classified as games of skill and have not been sanctioned or licensed by state or central authorities, thus potentially violating BNS along with state-level gaming statutes.”

CHANCE GAMES TO REMAIN VIABLE

Most gaming companies have yet to fully recognize the precarious landscape. Many platforms, caught in denial, have introduced games involving wild, outright wagers where the element of speculation is complete and exceeds that of ‘opinion trading’ games – in which bettors wager on variables like bitcoin prices, weather conditions, or wickets taken by a bowler in a single over of an ODI match.

Even if one contends that some degree of analytics, historical performance, or calculations factor into option trading bets, pure wagers – such as ‘Aviator’, ‘Andaar-Bahaar’ (an aggressive card game variant), and various forms of Roulette (or spinning games) that are unrelated to actual events like crypto trading or weather forecasts or sports matches – would be considerably harder to defend as requiring any skill. A player of Aviator must hit the button just before the rocket or plane explodes to succeed.

A number of gaming companies have engaged law firms and retired judicial officers to advocate for these games (as legislation prohibits gambling that necessitates no skill). Sources indicate they have resorted to launching these games to offset the hefty 28% GST on the betting pool and keep the business ongoing. However, paying taxes does not legitimize an ‘unauthorized’ venture – especially in the absence of any regulatory agency or a self-regulatory organization to certify that a particular game is a ‘game of skill’ rather than mere gambling.

For the previous 14 months, gaming firms have been wrestling with the GST burden.

“From October 1, 2023, a revised GST framework for online money gaming has been enforced, wherein a 28% tax is imposed on each deposit made by a user on the platform. This new framework has severely challenged small to mid-sized startups to remain operational, with many attempting to innovate with new games, venture into other related sectors, expand internationally, or undertake broad cost rationalization initiatives. In the forthcoming quarters, we will gain insight into how many companies can effectively adapt and persist,” explained Sayta.

The tax has already cast a pall over the industry, with only one firm managing to attract investors in 2024. While the GST issue is still before the Supreme Court, the ongoing uncertainty is beginning to take a toll (as indicated by GetMega). The controversy before the highest court primarily involves three games – Poker, Rummy, and Fantasy Sports – and revolves around two key issues: firstly, whether a game constitutes pure gambling or a game of skill; secondly, whether the 28% GST applies to the entire betting sum or merely to the fee (generally ranging from 5-20%) that a gaming platform collects from players.