Bet on the future: gambling closer to being legalised in India

The Commission’s recommendations

Legislative changes to enable legalisation of gambling in India

The Commission explained that there were a number of avenues for legislative reform that could be relied upon to facilitate the legalisation of gambling in India. This included Parliament enacting a model law for the States to adopt, or alternatively relying on its powers under Articles 249 or 252 of the Constitution. The Commission also flagged consequential amendments on other legislation, such as the extension of the exemption on horse-racing to other “skill-centric games”.

Any income from the legalised gambling industries would become taxable under the relevant tax laws, including the Income Tax Act, 1961 and the Goods and Services Tax Act, 2017. Additionally, to deal with the potential risk for match fixing, the Commission proposed that “match-fixing and sports fraud” should become the subject of specific criminal offences with “severe punishments”.

Ethical and safety considerations

The Commission placed considerable emphasis on the ethical and safety implications of legalising gambling, making clear that “operators ought to focus on the safety and protection of players indulging in such skill-centric games”.

The Commission specifically proposed that:

• Gambling should only be offered by “Indian licensed operators from India possessing valid licences”.
• Participants should have a cap on the number of transactions they can enter into and the betting amounts should be limited by law with appropriate upper limits prescribed. There should also be similar restrictions for participants using electronic means of payments such as credit cards or debit cards. Any transactions should also be cashless so that the authorities can monitor any transaction made.
• A distinction between “proper gambling” and “smaller gambling”, with proper gambling involving higher stakes gambling and only being open to individuals belonging to the higher income group. This means that individuals belonging to lower income groups would be precluded from gambling “high amounts”.
• For the purposes of transparency and supervision, all transactions should be “linked to the operator’s as well as the participant’s Aadhaar Card/Pan Card”.
• Barring vulnerable sections of society from being allowed to gamble, including those aged below 18 years, those below the poverty line and receiving social welfare benefits such as subsidies to Jan Dhan Accounts.
• Information about the risks of gambling should be prominently displayed on all portals/platforms.
• Requiring “detailed safeguards” for employees of casinos and “internal control requirements for casinos” (such as customer due diligence) to prevent issues such as problem gambling and gambling by minors.

Provision for Foreign Investment

The Commission has proposed that gambling should only be offered by Indian licensed operators from India. However, the Commission has raised the prospect of allowing Foreign Direct Investment in any legalised gambling industry in India, and suggested appropriate amendments to the Foreign Exchange Management Act 1999 and the associated Rules to facilitate this.

Comparison with other jurisdictions

Australia

The Commission noted that the federal and state Governments in Australia are heavily involved in every aspect of gambling, with the federal Government responsible for enacting national laws and the state and territory Governments overseeing most of the practical aspects of gambling.

The Commission emphasised that the Interactive Gambling Act 2001 (Cth), which was amended in 2017, had “protected residents from the harmful effects of online gaming” by prohibiting certain interactive and online gambling activities such as roulette and poker and banning advertisements of interactive gambling. Although online sports betting, horse-racing and greyhound racing are permitted, operators have to obtain a licence.

The Commission had recognised Australia’s attempts to put in place appropriate protections and made recommendations that would provide a far stronger level of protection for customers.

The Commission’s recommendations are only directed at legalising “skill-centric games”. This means that the Commission has not proposed allowing the introduction of “Pokies” or slot machines which are bereft of any requirement for skill or ability and have caused considerable problems in Australia.

Additionally, Australia has been plagued by low-income earners spending a sizable portion of their income on gambling, particularly in sports. These problems appear to be accentuated because Australia does not have the restrictions being put forward by the Commission, such as preventing people living below the poverty line and social welfare recipients from gambling. Rather, Australia only prohibits children under the age of 18 from gambling. Of course, higher income earners in Australia are not immune from the effects of problem gambling. One reason for this is that Australia does not have a cap on the amount and/or number of transactions that can be made by a customer such as the one being proposed by the Commission, despite many gambling reform advocates calling for such a cap to be introduced.

Great Britain

In Great Britain, gambling is regulated pursuant to the Gambling Act 2005, and a Gambling Commission is established under that Act to regulate gambling and issue licences and monitor licensees.

Great Britain only provides limits on the amount of stakes, winnings and prizes for physical gaming machines and, like Australia, Great Britain does not restrict people living below the poverty line and/or social welfare recipients from gambling, and does not have any cap on the amount and/or number of betting transactions that can be made by customers.

Conclusion

The Indian Government has not yet announced that gambling will be legalised. However, the Commission’s recommendations suggest that the legalisation process itself would not be overly complicated or lengthy, if the Indian Government chooses to go down this path.

The Commission’s suggestion that gambling should only be offered by Indian licensed operators from India is interesting. On one level, it would appear to offer Indian companies with a unique opportunity to enter the gambling market. They will not face competition from gambling companies established overseas, and could use the Indian market as a base to set up operations before expanding internationally.

At the same time, the Commission has clearly advocated allowing Foreign Direct Investment in any legalised gambling industry in India. This would give established overseas operators a clear opportunity to partner with Indian gambling businesses and take advantage of the potentially sizable market in India. Of course, there may be concerns about the level of profitability in India given the stringent safety proposals by the Commission. However, the size of the Indian market and the interest in sports could still make investing in a legalised gambling industry an attractive proposition.