Business Gaming

Most Sikkim PL holders disappointed with stringent license conditions but Future Gaming confident of starting operations

Exclusive One month after the news of Sikkim awarding a ‘go live’ license to Future Gaming Group was first reported on, it is understood that several provisional license holders are unhappy with the final conditions imposed by the Sikkim government in the revised Provisional License (PL) and go live’ license. The  main contentious issues in the final set of licenses are the requirement of providing online gaming services only through an ‘intranet’ connection, providing facilities of access to those desiring to avail online gaming services, restricting access to those geographically located in Sikkim and taxes/license fees.

Several sources familiar with the matter admitted that the intranet condition is the most contentious issue which would restrict access to only select few players (unless allowed to operate in public spaces/internet cafes)  and several PL holders are considering not obtaining ‘go live’ licenses due to this condition alone. Apart from this, the issue of restricting access to those located in Sikkim is another major impediment for PL holders. It is understood the requirement of the gaming website not traversing to the territorial boundaries of other states/Union territories is expressly mentioned in the license condition apart from the clarification that was issued by the Union Home Ministry in April 2014 to the Sikkim Finance Department.

Another bone of contention is the issue of taxation and license fees. Revised conditions have made it clear that the license fee will be one crore for a period of five years and a ‘Gross Gaming Yield’ (GGY) Tax (total collections minus winnings) at the rate of ten per cent or five crores per annum whichever is higher would be imposed on the licensees. Applicants are further required to deposit a annual bank guarantee of five crore rupees as assured revenue to the state before commencing operations.  Experts in the gaming industry fee that the tax rate, especially the minimum assured tax to the government is an onerous burden on the licensees if operations are restricted only to the state of Sikkim as the revenue potential would be extremely limited.

It is understood that several PL holders are doing a rethink on their Sikkim strategy due to the unreasonable conditions and are considering withdrawing from the Sikkim process. However a couple of PL holders seem unfazed by these conditions and are determined to start operations once the necessary infrastructure is set up and necessary approvals are given. Kapil Khanna, CEO of Future Gaming (which has already received a go live license) remained confident about starting operations despite these impediments. Commenting on the go live licenses Khanna said that they were already in the process of setting up infrastructure and their aim was to start operations as soon as possible. Khanna added that they hoped to launch the website at least by March next year, before IPL begins.


Andhra government mulls proposal to legalise casinos in bid to boost tourism

Reports in the media indicate that the Andhra Pradesh government led by Telugu Desam Party (TDP) chief N Chandrababu Naidu has received a proposal to develop casinos in the port city of Visakhapatnam  (Vizag) on the lines of offshore casinos in Goa. The Andhra government reportedly wants to develop Vizag as a global tourism destination and attract visitors from India and abroad.

A report in Deccan Chronicle indicates that casino operators from Goa have put proposals before the Andhra government. Those familiar with the matter indicate that the proposal was put forth by Delta Corp Chairman Jaydev Mody. It is believed that a large portion of gamblers in Goa casinos belong to the Andhra Pradesh-Telengana region and contribute a large sum to Goa’s tourism revenues. A cash-strapped Andhra government reeling under the impact of Cyclone Hudhud is facing a fiscal crisis due to various populist schemes introduced by it. Promoting tourism and developing Vizag into a global tourist hub with state of the art recreational facilities and casinos could be the ideal way to attract tourists from across the globe.

Vizag to be next casino destination?
Vizag to be next casino destination?

Some reports also indicate that the Andhra government is keen to allot land near Vizag to have a Disneyland in the state on the lines of the Disney park in Paris. While it is understood that the Andhra government has neither accepted nor rejected the casino proposal, Naidu is likely to assess the sentiments of the locals and impact on those living in the state before taking any final decision.  It may be recalled that states like Maharashtra, Haryana, Odisha, Jammu & Kashmir etc. have considered proposals to legalise casinos but have rejected the idea because of opposition from political and social groups. More recently the government of Punjab was considering allowing casinos in Ludhiana as part of a tourism project but later dropped the plan because of opposition from religious and social groups.

Sources however indicate that the Andhra government might not be in any hurry to react to the proposal. It remains to be seen if Naidu, who is seen to be a pragmatic and astute politician would be able to allay local apprehensions and clear the project, given its obvious benefits.


Sikkim online gaming, betting websites to go live very soon as government issues first regular license

Exclusive After five years of ambivalence, the Sikkim government has finally issued the first regular license for starting online gaming operations to a subsidiary of M/s. Future Gaming Solutions Private Limited headed by lottery king Santiago Martin.  Kapil Khanna, Chief Executive Officer (CEO) of Future Gaming confirmed to over phone that Future Gaming has recently been issued a regular gaming license by the Sikkim government. Khanna further added that Future Gaming has been the first Provisional License (PL) holder to be awarded a regular license. Khanna also said that Future Gaming would launch its operations in the state of Sikkim very soon, possibly in the next few days.

Initially it was perceived that online gaming services could be offered across India on the basis of Sikkim licenses and PL holders were waiting for clarifications from the Central government. However it is now understood that the Union Ministry of Home Affairs had issued a clarification to the Sikkim Finance department in April 2014 indicating that online gambling regulation also falls within the ambit of state legislatures under Entry 34 List II of Seventh Schedule (of the Constitution) as long as such gambling is restricted to the territorial boundaries of the state and online gambling services are not offered to other states/Union territories.

As per the conditions of the Sikkim Online Gaming (Regulation) Act, 2008 and rules/notifications thereunder, licensees would be able to offer games such as poker, baccarat, roulette, blackjack, sports betting etc. once the website goes live. It is understood that apart from Future Gaming, other PL holders are also in the process of acquiring a regular license and starting operations very soon.

It has to be noted that despite waiting for over five years for clarifications from the Central government, the Sikkim online gaming licenses have disappointed many in the gaming industry since online gaming and sports betting would have to be restricted only to the state of Sikkim (which has a tiny population and small gaming market). The possibility of offering gaming services in other states exists only if such states pass a similar law legalising online gambling or gives their consent to allowing Sikkim websites to operate within their territorial boundaries, which at present seems to be a tall order.

However, the launch of gaming websites in the state of Sikkim may prove to be an important first step in emboldening other states to pass similar legislations and may even require the Central government to step in. Inter-state pacts or agreements between the state of Sikkim and other states to offer online gaming services also cannot be ruled out.  The Indian online gaming situation now looks similar to gaming regulations in USA (where individual states are allowed to regulate online gaming within their territorial boundaries). Delaware was the first state in USA to legalise online gaming followed by Nevada and New Jersey (Delaware and Nevada have also signed an inter-state gaming pact).

In the gaming context, Sikkim seems to be the Delaware of India. Sikkim has been the first state to allow land-based casino and online lotteries and has been the most liberal in allowing almost all forms of gaming.  It remains to be seen how online gambling regulation in India will pan out post this experiment by the Sikkim government.

Gaming Legal & Regulatory

Singapore passes new law to prohibit offshore online gambling; scope for granting exemptions to charity operators

The Singapore Parliament passed a new legislation to regulate online gambling yesterday. Titled the Remote Gambling Act, 2014 the new law aims at prohibiting most forms of online gaming while leaving open a provision for licensing online gambling and wagering under strict terms and conditions.

The Remote Gambling Act makes gambling and wagering through all forms of communication such as internet, telephone, television, radio etc. illegal. The Act further makes it unlawful for players to participate in wagering activities on offshore gaming websites and imposes a penalty of up to Singapore $ 5,000 and/or imprisonment up to six months on those participating in unauthorised online gaming websites. The Act further imposes higher criminal sanctions on those operating online gaming websites with a Singapore link, agents encouraging betting/gaming on such websites, payment providers facilitating gaming payments and those encouraging underage and youth to gamble online.

The comprehensive Act having 43 sections also allows the Singapore government to block access to gambling websites operating in contravention of provisions of the new law.  The only manner in which online gaming would be permitted in Singapore is through certificates of exemption granted by the government under Section 26 of the Act.

As per Section 26, the Singapore government has left open a window for allowing licensed online gaming operators to conduct its activities if its deemed fit in public interest and if the particular operator is a not-for-profit entity. In the Parliamentary debate before the passage of this Bill, many MPs raised several reservations about provisions in the Bill. While some criticised the new legislation for being one of the most restrictive in the world, those on the other end of the spectrum did not want even a clause to leave open a window for exemption of certain category of operators. Second Minister for Home S Iswaran however allayed fears of the Parliamentarians. In a statement made in the Parliament, he assured MPs that the new Act would not penalise freemium games that do not allow exchange of tokens/points for cash or prizes. He further added that certificate of exemptions would not be granted for poker or other casino games, though there is nothing in the new Act which stops the government from granting such exemptions.

Singapore currently allows various forms of betting and wagering. While casinos in the city state have been allowed for tourism purposes, state owned operator Singapore Pools operates lotteries and a variety of other bookmaking activities. It remains to be seen whether Singapore allows a state-run entity such as Singapore Pools to offer online betting and gaming services in future.

Business Gaming

Punjab lottery operators go on strike over tax hike, impasse likely to end soon

India’s top three lottery operators, Pan India Network Limited, Sugal & Damani and Future Gaming (all three also hold lottery licenses from the Punjab government) have gone on strike in Punjab over the state government’s move to increase lottery tax. It is understood that the lottery operators are on a state-wide strike since 1st September. As per news reports, the Punjab government in a bid to earn additional revenue, had raised lottery tax on single digit draws from Rs. 55,000 to Rs. 80,000 per draw while for lotto and four digit lottery, the tax had been proposed to be raised from Rs 1 lakh to Rs 2 lakh and from Rs 85,000 to Rs 2 lakh respectively.

Justifying the strike, Rahul Tangri, President of Pan India Network Limited while speaking to Press Trust of India (PTI) said, “Last year, the state government had promised to reduce the tax to Rs 40,000 per draw while we agreed to increase the number of draws to 42 per day in order to give more revenue to the state government. But we are now shocked to know that instead of reducing tax, the state government is planning to increase the tax amount.”

Tangri further added that the state government earns Rs. 120 crores through lottery tax annually and the industry provides employment to over one lakh residents of the state.  While the lottery operators have taken an aggressive stand to push the state government to rollback the tax hike, sources familiar with the matter indicate that some kind of solution or compromise is expected soon and lottery operators may resume their services soon. A legal challenge to the tax hike if necessary is not ruled out by the lottery operators.

It may be noted that the Punjab Tax on Lotteries Act, 2005 governs the procedure for taxation of lottery draws while the Punjab State Lotteries Rules 1998 cover the procedure of conduct of lotteries.  In 2013, the Punjab & Haryana High Court dismissed a PIL challenging the number of lottery draws in the state stating that the state was conducting lotteries as per Central Lottery Rules and there was nothing illegal in carrying out lottery business.


Nepal government grants concessions to casinos in bid to boost tourism

Three months after the turmoil in the Nepalese gaming industry, the Nepal government has introduced major changes in the taxation structure in the budget for the year 2014-15.  After Nepalese casinos were declared illegal following non-payment of royalties and other taxes by casinos, the Supreme Court passed an interim order in June 2014 directing the government not to shut down mini casinos in three and four star hotels.

After months of uncertainty,  the Nepalese government based on representation from various casino companies decided to change the royalty and taxation structure.  75% of the total royalty and penalties due has been waived off for casinos which had closed down business prior to 18th October 2013 by submitting a written application to the government. Similarly, 25% of the total royalty and penalties due has been waived off for casinos which had closed down business in May 2014 by submitting a written application to the government.

Further, the annual royalty for casinos has been reduced to 3 crore Nepalese rupees (approximately US $ 311,000) instead of 4 crore rupees applicable earlier. The royalty for mini casinos (casinos having only electronic gaming equipment and slot machines) has been reduced to rupees two crores per annum (roughly US $ 207,300) instead of three crores applicable earlier. A provision has also been made to allow holders of mini casino licenses to operate in four locations simultaneously while one license holder can operate only one live casino.

Interest of 15% per annum will be charged for non-payment of royalties within three months of due date with provision of further 15% per annum penalty for time period exceeding three months. The Ministry of Culture, Tourism and Civil Aviation is expected to be the nodal ministry for payment of royalties and other fees.

It is believed that the steps taken by the Nepalese government will revive the casino industry and boost tourism. Economists believe that incentives are required for various businesses to boost the fiscal health of the Himalayan state which has not performed as per expectations in the past few years. It remains to be seen whether this move to incentivise casinos can revive Nepal’s gaming industry and whether Nepalese casinos will be able to once again attract tourists from India and other Asian countries.

Gaming Legal & Regulatory

Japanese Prime Minister endorses move to legalise casinos in bid to promote tourism, boost economy

In a bid to promote tourism and give a fillip to economic growth, Japan is in advanced stages of legalising casinos in the island state in a structured manner. News reports indicate that the ruling Liberal Democratic Party (LDP) have submitted a bill to legalise casinos in the country and would probably be passed by Diet, the Japanese Parliament in the next session of Parliament, by January 2015.

Though there has been lot of discussion of Japan legalising casinos in the past few years, the talks gained serious momentum only last year with a cross-party group of pro-casino lawmakers making an aggressive push for allowing casinos before the 2020 Tokyo Olympic Games. With Japanese Prime Minister Shinzo Abe visiting casinos in Singapore and claiming that casinos have many economic benefits, it seems certain that a few casino resorts would be allowed in Japan within the next couple of years.

Many top global gaming companies such as MGM Resorts International, Caesars Entertainment Ltd., Melco Crown Ltd. etc. are said to be interested in developing integrated gaming resorts in Japan. Analysts indicate that the Japanese casino industry may be worth at least US $21-22 billion and estimate around US $ 2 billion in revenue annually for the government.

It may be noted that most forms of gambling are currently illegal in Japan though there is a huge craze for gaming in the Asian state and gaming is very much prevalent underground. Online gambling is a grey area though some gaming sites are accessed by Japanese citizens. Several forms of gaming such as lotteries, betting on horse racing and motor sports etc. are however exempted from gambling legislations and currently legal. The famous pachinko (pinball like slot machine) parlours of Japan are also allowed for cultural and historical reasons. However explains that not all are legit and many pachinko parlours are controlled by the Japanese mafia and used for various illegal activities.

The move by the Japanese government to legalise casinos is likely to increase competition among other Asian casino hotspots such as Macau and Singapore. The move may augur well for the Indian gaming industry as well since the ruling Bharatiya Janata Party (BJP) lawmakers including Prime Minister Narendra Modi are said to be impressed with Japanese policies and laws and may thus be more receptive to calls for legalising gambling and betting.

Gaming Legal & Regulatory

Election results 2014 and impact on the Indian gaming industry

So the eagerly awaited Lok Sabha results are finally out and it is clear that Narendra Modi will become the next Prime Minister of India. The conservative Bharatiya Janata Party (BJP) and its allies will rule Delhi for the next five years (incidentally, the Indian betting industry correctly predicted a big Modi win). Like all other sectors, the gaming industry was also eagerly awaiting the results of the 2014 elections to gauge whether there would be any chance of regulation of betting and gaming in the coming  five years. Virtually all industry experts in the last two FICCI conferences on sports betting/gaming also indicated that any decision on legalising sports betting or gambling will  take place only after a new Central government settles down.

Since it is now clear that there would be a stable government at the Centre, it is necessary to analyse changes in the gaming industry that may be possible in the foreseeable future:

1. Decision on regulating online gaming and betting

By all accounts, Narendra Modi favours business houses and is amenable to opening newer sectors of the economy to bring in additional revenues and employment. However, while Modi is a pragmatic pro-market leader, he is also known to have strong views against vices and immoral activities. Gujarat is one of the few states to prohibit alcohol and the state also does not permit lotteries or any other form of gambling.

No attempts have been made by the Modi-led Gujarat government to permit lottery or any other form of gambling in the last decade. Hence it is unclear whether the decision to regulate online gaming at the federal level will at all be taken. However one can be certain that Modi is not a person who likes ambiguities or uncertainities and hence one way or the other, a decision on the topic is likely within the next five years- with the new Ministers of Information Technology, Home Affairs, Sports and Youth Affairs and Law and Justice likely to play a major role in deciding whether to regulate online gambling at the Central level or to leave the decision to individual states.

2. Regulation of lotteries

It is unlikely that the new BJP government will change the Lotteries (Regulation) Act, 1998 or open new avenues for lottery operators. Most of the BJP-ruled states except Goa and Punjab do not permit lotteries. It is unlikely that this decision would be reversed anytime soon especially since BJP and its leader Vijay Goel had lead the agitation to ban lotteries more than a decade ago. However, a few individual state governments like Jharkhand, Uttarakhand and Himachal Pradesh may decide to permit lotteries once there is political stability.

3. Offline betting, gaming and casinos

The Modi-led government is unlikely to deal with matters traditionally under the domain of state governments and hence may not take any call on regulating offline gaming and casinos. Individual state governments may however chose to allow casinos in a few select locations to promote tourism and provide employment. Regulation of offline sports betting or other forms of wagering by state governments is also unlikely in the short term. The Central government (which controls the administration of all Union territories) may also take an unfavourable view on allowing casinos in Union territories like Daman.

Will Modi legalise gambling?
Will Modi legalise gambling?

4. Income tax on gambling, betting and lotteries

Current provisions in the Income Tax Act prescribe a tax rate of thirty percent on winnings from gambling, betting, games of skill, prize competitions or lotteries. Further, organisers are expected to deduct thirty percent tax at source for all gaming winnings of over ten thousand rupees. This thirty percent tax rate is termed to be very high and unsustainable by those in the gaming industry. With the general manifesto promise of reducing taxes, in a future annual budget, the government may consider reducing the tax rate in this sphere if appropriate representation is made to the Finance Ministry.

5. FDI on gambling and lotteries

The current FDI policy does not permit any form of foreign participation (including technology collaboration) in the gambling and lottery sector and has been in place since the previous BJP-led government was in power. Though BJP generally plans to open up foreign investment in most sectors of the economy, an immediate review of the FDI ban on gambling/betting seems unlikely until such time as the government goes for structured legalisation and regulation of gambling and betting (specially online gambling and betting regulation at the federal level).

6. Sikkim and Goa

a. Sikkim

Simultaneous state assembly elections were held in Sikkim along with the national elections and the incumbent Sikkim Democratic Front (SDF) won a record fifth term in power albeit with a reduced majority. The current Chief Minister Pawan Kumar Chamling won another term in the Himalayan state, capturing twenty-two of the thirty one seats and the lone Lok Sabha seat. Newly formed opposition party Sikkim Krantikari Morcha (SKM) won ten of the thirty-one seats.

Since Chamling has a renewed mandate with two-thirds majority, it is unlikely that he will change the favourable lottery and casino policies. It is also possible that more licenses will be issued for operating casinos in the state soon. SKM is also unlikely to oppose most of the gaming policies as it is a major source of revenue for the tiny state.

Again, the Sikkim online gaming licenses which were issued four years ago have not been able to successfully operate due to potential conflict between Centre and State laws. However since the ruling SDF does not have any traction or bargaining power with the Central government, it is unlikely that it would be able to convince the Central government to allow the Sikkim online gaming websites on a nation-wide scale. The Modi-led government will take a call on allowing online gaming at its own convenience, at least after a year or two in power.

b. Goa

Manohar Parrikar has tightened his grip over Goa by ensuring that BJP wins both the Goa Lok Sabha seats. With a favourable result for his party at the Centre, Parrikar who is a senior leader and friend of Prime Minister designate Narendra Modi is touted to have a big role in Delhi. Thus, Parrikar may  quit as Chief Minister to join the government in Delhi and BJP may have to appoint another senior leader as the Chief Minister of Goa.

However, Parrikar will continue to have a major say in Goan politics irrespective of change in the local leadership. It is unlikely that the tough casino policies of BJP and Parrikar may be reversed anytime soon; however there is a strong chance of a few favourable changes for the casino industry (including grant of new offshore casino licenses departing from the earlier cabinet decision) if there is a new Chief Minister in the state who is more amenable to allowing gaming.

Business Gaming

Income Tax officials raid Goa casinos over money-laundering, tax evasion allegations

In a surprise move coming in the middle of election season, Income Tax officials raided casinos and other properties of two biggest gaming companies, Delta Corp and Pride Group reported Times of India. The raids were carried out by the IT department over allegations of money-laundering and tax evasion by the two companies.

As per media reports, Deltin JAQK, Deltin Royale and Pride 1 & 2 offshore casinos as well as Hotel Neo Majestic premises were raided by tax authorities yesterday. Apart from casino properties, other properties owned by Pride and Delta Group companies in Mumbai and Delhi were also raided by tax officials. More than 25 residential and office premises of Delta Corp offices in Mumbai and Goa (including offices of real-estate company Peninsula Land Limited) were raided by the authorities. Residences of Pride Group Directors Ashok Kumar Khetrapal, Ashok Wadia and BR Arora were also raided in Mumbai and Delhi.

The raids were carried out by tax authorities on a tip-off by unnamed informants indicating that large unaccounted cash transactions were carried out by casinos and that high rollers used casinos to transact in black money. Income tax authorities indicated that more details about the probe would be revealed in the next couple of days while casinos remained shut yesterday. It remains to be seen whether the casinos are found to be violating provisions of the Goa government Anti-Money laundering Guidelines of 2013 (which mandate cash transactions of over ten lakh rupees and transactions by politically exposed persons to be reported to the Financial Intelligence Unit) or the Income Tax Act.

It must be noted that the Income Tax Act also mandates deduction of 30.90% Tax Deduction at Source (TDS) on gambling winnings of over ten thousand rupees. However, it is not clear whether the tax authorities would look only at the money-laundering angle or also investigate into TDS deductions and other suspicious transactions. However, the timing of the raids indicate that political conspiracy could also be the reason behind the swift action by Income Tax authorities as Delta Corp Promoter and Chairman Jaydev Mody is said to be close to top BJP leaders including Goa Chief Minister Manohar Parrikar.

Update: Delta Corp issued a press statement to the NSE on 30th April 2014 about the raid. The statement reads as follows: “With reference to the new item appearing in the Media titled ‘IT department raids the premises of the company’, Delta Corp Ltd has Clarified to BSE that the Income Tax Authorities had carried out search and seizure proceedings at the premises of the Company and certain officials on April 29, 2014. The Company is in the process of collating & responding to all the queries raised by the Income Tax Authorities and the responsible officers of the company have been extending all co-operation in this regard.”


Nepal casinos shut down by government due to non-payment of royalties, expected to restart operations after negotiations

The casino industry in South Asia suffered a major jolt as all ten Nepalese casinos were declared illegal and ordered to be shut down due to non-payment of royalties by the Nepalese Tourism Ministry. The Tourism Ministry has written to the Home Ministry and requested that  casinos operating in Nepal be deemed illegal from Sunday, 20th April 2014.

As per reports in Nepalese daily Himalayan Times, all ten Nepalese casinos have shut operations  leaving more than 11,000 locals dependent on the industry jobless as casinos refused to clear royalties and taxes as per new Casino Regulation 2070 introduced in 2013. As per the new regulations, every casino operator was supposed to pay an annual license fee of 20 million Nepalese rupees (roughly US $ 207,000) and an annual royalty of 40 million Nepalese rupees (roughly US $ 414,000).  However despite repeated extensions by the Nepalese government, the casinos did not apply for the new license and refused to clear the arrears in royalties claiming that the taxation rates were high and unsustainable. The ten total casinos are currently owe in excess of 675.67 Nepalese rupees (roughly US $ 6.8 million) to the Nepalese government. Casinos had also approached the Nepalese Supreme Court for relief in March 2014 but the Court declined to intervene culminating in the current crisis.

End of Nepalese casino industry?
End of  the Nepalese casino industry?

It may be noted that Nepal has permitted casinos to offer services to non-Nepalese tourists since 1967, making it the oldest state in South Asia to allow casinos. However, the casino and tourism industry in the Himalayan state has witnessed turmoil after its last monarch King Gyanendra abdicated the throne to pave way for democracy in the state. Various political changes including rule by Maoists have resulted in a strenuous relationship with the casino industry in the past few years.

In 2011 there was a legal tussle between casino owners and Nepalese government over payment of taxes and levies. However, insiders believe that the current crisis would be resolved as negotiations between the Nepalese government and casino industry to give concessions in payment of taxes and royalties as the current rates are underway. The current rates of taxation termed as ‘unsustainable’ by casino companies and those following the gaming industry. It would be interesting to see whether India casinos seize the opportunity due to the turmoil in Nepal and whether there would be improvement in numbers in Goa and Sikkim casinos.