Indians who buy lottery tickets may have to shell out more to take a chance on fortune under the goods and services tax (GST), which is expected to be rolled out on July 1. The government is looking to put lottery tickets in the 28% GST bracket, the highest slab, according to people with knowledge of the matter. That’s up from minimal or zero tax levied by about a dozen states that have lotteries.
They are either run by these state governments, such as those of Sikkim, Punjab, Goa, Maharashtra and Kerala, or external parties licensed by them. According to industry estimates, lotteries are a Rs 50,000-crore business.
“The taxation has to be logical,” said Rahul Tangri, president, Playwin, an electronic lottery provider. “It would be very unfair if the government levies tax on the ‘face value’ of the lottery.”
The ‘face value’ of a lottery pot comprises three parts – the prize money, government taxes and operators’ margin. According to the people cited above, the government may be looking to tax the face value.
“GST should only be levied on the operators’ margin. The prize money part comes under direct tax (income tax paid by the winner),” said Tangri.
This could impact the revenue of the state governments cited above, as a significant part of the money paid for a ticket goes to them, and even force some operators to shut shop, experts said. It may also create some academic and legal issues as lotteries are tough to define, they said.
“GST would cause trouble for many categories as they may neither be defined as products or services,” said Dinesh Kanabar, CEO, Dhruwa Advisors.
“Like in the case of lotteries, they are neither a service nor goods and it would be difficult to categorise them and then put them under a tax bracket.”
The industry is critical of the move. “Any irrational tax structure would kill the industry,” said Kamlesh Vijay, CEO of Sugal & Damani, one of India’s largest lottery and gaming operators. “Lottery is a well-regulated industry. It provides direct employment to over 10 lakh people. Higher tax slabs would force lottery companies out of business. It will also spawn a large number of underground, illegal lottery schemes,” he said.
Surprisingly, some of the states that depend on lottery revenues are supporting higher taxes under GST.
“Lotteries which are managed by external parties do not conform to any rules laid down in the Central Lotteries Act. These are mostly what you call the lottery mafia,” Kerala finance minister Thomas Isaac told ET. “A higher tax regime would drive these people out of business. I am prepared to lose some revenue because of higher GST slab on lotteries. It will eliminate a big law-and-order problem around lotteries in our country.”
To be sure, proceeds from lotteries have grown 10 times to about Rs 5,500 crore from around Rs 500 crore in five years for the Kerala government.
One problem is that Indian courts have clarified in the past that lotteries are neither goods nor services. Many states and the lottery business are taking the view that, due to this, GST should ideally not apply on lottery tickets.
The Economic Times, 04 May 2017