High taxes, selective bans drive 30% growth in illegal online gambling in India, says study

Inadequate legal framework, selective banning as well as high taxation on legitimate online gaming platforms is acting as a driver of illegal betting and gambling activity in India which is expected to grow at 30% in coming years, according to a new study.

According to Delhi-based policy think tank Centre for Knowledge Sovereignty (CKS), in India, despite regulatory restrictions, the illegal better market receives an estimated $100 billion per annum in deposits.

Independent statistics suggest that this market grew at 7% CAGR from 2012 to 2018 and is expected to grow at an annual rate of 30% in the coming years, CKS said in a whitepaper.

“India’s existing legal framework for online gaming is markedly inadequate… (and) provides a conducive environment for the operation of illicit gambling and betting entities,” said Vinit Goenka, Founder Secretary, CKS.

He added that illegal operators are taking advantage of the new tax regime which levies 28% tax on deposits on legitimate gaming platforms.

“They are deceiving consumers into joining and participating on their platform on the pretext of exemption from any GST or taxation obligations,” he said.

According to recent estimates, online gaming companies registered under the new GST regime have contributed INR 3,500 crores in the October-December quarter, CSK said in the whitepaper.“The central government expects to collect up to INR 14,000 crores in GST from this sector in the upcoming financial year. It is expected that this sector would contribute approximately INR 80,000 crore in the next five years.”

Goenka also highlighted that the technology Ministry’s efforts to ban offshore betting websites has been ineffective as illegal operators have resurfaced through new web domains.

“The piecemeal strategy, characterized by periodic blocking orders under Section 69A of the IT Act, has proven ineffective in yielding the desired outcomes,” he said, adding that the issue is further compounded by the state level bans on legitimate skill-based gaming.

For instance, in Telangana, the government’s blanket ban on all online games in 2017 led to a surge in illegal online gambling activities, exemplified by a Chinese firm allegedly operating a massive illegal gambling racket worth over Rs 1100 crore in the state.

CKS proposed that the government needs to constitute a dedicated taskforce to tackle illegal operators – both offshore and domestic. Further, there must be a ‘Whitelist’ comprising companies offering games of skill so that all payment gateways, hosting providers and internet service providers offer services to only those operators within the ‘Whitelist’.

India currently hosts around 1330 homegrown gaming startups generating revenue of $2.8 billion which is projected to grow at a CAGR of 21% to over $7 billion by 2026. Of this, Pay-to-Play gaming shall command 83% revenue share. Further, forecasts suggest that AI and online gaming could contribute as much as $300 billion to India’s GDP by FY 2026-27, CKS said in the whitepaper.