Legalizing Online Gambling and the purview of Taxation

By Sanjeevani


Recently the hon’ble supreme court reinforced the judgments given by the Punjab and Haryana high court, Rajasthan high court and Bombay high court in the case of a fantasy gaming application better known as Dream 11 and stamped its opinion portraying it as a “game of skill” and not a “game of chance”.  In the further article, we shall discuss the correlation between such online platforms and their place in or legislation, and their potential to affect our economy in a broader sense.  India has emerged as an enormous and growing market globally when it comes to online activities like gambling, gaming, betting, etc. but the issue is that how many of them are actually covered under the Indian legislative system and how many of them are still left uncatered. The passage will specifically deal with such online gambling platforms and their place under the Indian taxation laws.

A Taxation Framework

The goods and services tax act was passed in India in 2014 through the 122nd amendment act and replaced the older system of tax collection system in India. It is based on the principle of destination-based consumption taxation. There are broadly two types of GST, the SGST, and CGST, collected by the state and central governments respectively. The tax system has various tax slabs decided by the government through which the consumers have to pay the taxes on their earnings. Some goodies have been exempted from this legislation like petroleum, tobacco, liquor, and stamp duty on electricity, etc. lottery, betting, and gambling are in practice in the country from the pre-independence era and these activities also don’t fall under the preview of GST. Recently, the provision was amended by the parliament exercising its powers under Article 246A of the constitution and the government can now levy tax on lotteries. 

A Contemporary Choice

With the advent of digitization especially in the covid times, people have found an alternative to everything online. Online gambling or casinos are also on the list. There are many sites managed by national and international agencies that provide people with the opportunity to earn money online using the ways of gaming and betting. Players play on such websites for the assurance of a certain sum of money which they can use for further trading. Such activities have also become a new form of addiction for people especially youngsters. 

Constitutional Backing

Gambling is a subject under the state list. This essentially means that the power to make any laws relating to betting and gaming in India will be made by various state-specific legislatures. The first and the only attempt to control gambling through legislation was made in 1867 with the introduction of the public gaming act, which banned such activities like these in the public sphere though they were still allowed privately. Another act, the Bombay prevention of gambling act of 1887 defined gaming as an act that includes both betting and gambling. Section 67 of the IT act, 2000 defines online gaming very loosely and it prohibits online transmission and publication of material with corrupt people. There is no uniformity in the legislation that deals with gambling and the legislations differ from state to state. Most of such laws deal with physical gambling, online gambling yet remains out of scope. the outdated of such laws is due to the sole reason that these laws were formed before the introduction of such internet into the mainstream. 

 The states of Goa, Sikkim, and Nagaland are the only ones with legislation that regulate such activities. Casinos there play a major role in contributing towards the tourism sector in these states. There are bodies such as the all-India gaming federation, FIFS, and the rummy federation which have developed a set of codes to regulate such type of gambling. The casino winners in India, as per the universal norms, give 30% of their earnings won through gambling to the government as taxes. This system of taxation is rested in the hands of the winning individual as there are no specific rules that regulate the offenders. other countries also collect a licensing fee which also adds to the final revenue collected out of such behavior.   The legal hurdles in India restrict the contribution of such activities in the final gross production in the country which is contrary to the situation in other countries. 

Benefits of Legalising Online Gambling

  • INCREASE IN REVENUE COLLECTION: the step can be helpful for the governments at both the central and state level and can help in utilizing the scope of gambling in the overall GDP of the nation. It will lead to better administration, proper application of laws, and improved revenue collection. This would also help the government in better surveillance of back money that flows from the pocket of offenders to such gambling sites. It will boost tax collection which is the need of the hour especially owing to the consequences of covid 19 on the Indian economy.  It also has the potential to bring foreign currency into the country through various agencies that coordinate such functions.
  • BETTER SURVEILLANCE: the foreign-based modes of gambling also pose a sense of threat to the Indian players. Legalizing it would help to protect the data of the Indian citizens. The country can in that way create an infrastructural platform that can persuade other nationals to use the Indian platform for earning. In this way setting up our regulatory framework would solve two major purposes, earning revenue for the state which will contribute towards the increase in the GDP, without compromising the data privacy of the people. 
  • EMPLOYMENT OPPORTUNITIES: Through legalizing local and offshore casinos, a vast number of employment opportunities can be generated for the people inside India and the foreign nationals. It can manifest as a boon especially to a covid-hit economy. Many other countries, with legalized betting and gambling, have expanded their economies and also created working opportunities for their citizens. Many foreign nations provide a friendly environment to the betting and gambling platforms due to the same reasons. Many countries have definite regulation frameworks that prevent the issues like unfair practices and money laundering. These authorities make sure that all casinos follow the rules set out by them. 

The Negative side of the Coin

  • MULTIPLE LEGISLATIONS: the public gambling act of 1867 is the only legislation that restricts the running of physical gambling houses in the country. It also gives the powers to the states to create their state-specific laws for gambling as gambling is a state subject. There is no such law that regulates the scope of online gambling. States like Nagaland, goa, and Sikkim also have separate legislation that regulates gambling in their respective states. The States of Andhra Pradesh and Karnataka have banned online gambling in their states. For better regulation, a uniformity has to be created for proper implementation. 
  • INFRASTRUCTURAL REQUIREMENTS: a dedicated setup for the smooth functioning of the process needs to be formed so that the other countries don’t misuse our position for unwarranted gains. A major chunk of the population in India indulges in such practices so the gains of it should be utilized for the betterment of our economic stance. 

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