GST implementation has rattled the whole Lottery industry badly, as, before GST, the overall tax incidence of service tax and lottery tax was around 6.71% on the face value. But, now, it is nearly 28% on the face value.
- Rajat Mohan
Lottery business as a sector has a major impact on the Indian economy, revenue generated add to the ex-chequer of Government. According to the data released by the All India Federation of Lottery Trade government has earned Rs 4,000 crores (approx.) through Goods and Services Tax (GST) on lotteries for the period July 2017-March 2018, West Bengal contributing Rs 2150 crores out of the said amount.
In India, there are two types of lotteries:
- Lottery run by State Governments- It means a lottery which is not allowed to be sold other than the organizing state. `
- Lottery authorized by State Governments- It means a lottery which is authorized to be sold in States other than the organizing state also i.e. it can be sold in any state.
GST implementation has rattled the whole Lottery industry badly, as, before GST, the overall tax incidence of service tax and lottery tax was around 6.71% on the face value. But, now, it is nearly 28% on the face value, including the prize money in cases of lottery authorized by state governments.
At present, 12% rate is applicable on lottery run by the state government and 28% on lottery authorized by state government. This differential rate on the same commodity act as a market barrier, as the lottery which is sold within the state is taxed at 12% as against the lottery which is sold without any restrictions at 28%. The industry is losing out money due to this massive tax arbitrage of 16%.
GST Council constituted a Group of Ministers to look into various issues relating to GST on Lottery. However, no consensus was reached on the new proposal of tax rates. Assam, Arunachal Pradesh, Goa, Maharashtra supported single rate of GST. However, Kerala, Punjab, West Bengal, and Karnataka supported the existing two rates of GST on the lottery. In the meantime, a taxpayer has filed a writ petition in the Supreme Court questioning the viability of GST on lottery, valuation and two rates of GST, all these issues raised in the writ petition needs to be considered by GST council and decided.
Going forward some limbs of the exchequer also expect a constitutional challenge in dual rate structure of lotteries, however, it has been well defended till now. Differential rates affect the market of smaller states like Sikkim, Nagaland, Goa, etc, who have demanded a uniform rate of GST on the lottery as post-GST India has become an integrated market with a uniform tax rate. Punjab state is willing to consider a lower uniform rate if there were legal difficulties with rate differential. Convenor of the GoM has decided that the matter be placed before the GST Council and the Council shall decide appropriate rate structure on the supply of lottery. Given the facts that lottery and betting is a SIN good, rate of tax should be high i.e. 28% or 18%.
Due to tax at higher rates, legitimate businesses are barely earning any profits, which has been booked by illegal lottery schemes across the country. Bringing down the high taxation rate will encourage more players as well as more retailers to run legitimate lottery businesses.
The supply of lottery by a State Government to a distributor/selling agent is charged to GST on reverse charge basis and GST is exempt on supply of lottery by distributor/selling agents to sub-agents/retailers. GST is a destination-based tax and thereby principally speaking GST revenue accrues to consuming state. However, in case of interstate supply of lottery by a supplier of organizing state to the distributor/ selling agent in the consuming State, GST does not accrue to the consuming State as such supplies are exempt from GST and the revenue is retained by the originating state. For this issue, a decision has been taken in Council, which suggested certain changes in the rules and a circular was to be issued. Till now, only Kerala Government had implemented it and the other States were requested to implement the changes in the rules as suggested. GoM has recommended that the existing exemption on inter-State supply by a distributor/selling agent in supplying State to the other agents in consuming State may be examined for removal in the Fitment Committee if this is leading to loss of revenue to the consuming State
The North-Eastern States have represented that a lot of misreporting was happening in inter-State operations of lottery especially in the online lottery which was leading to revenue leakage. On this issue, GoM has recommended that the State governments are empowered by existing lottery laws to ban online lottery, which would lead to good growth of revenue on paper Lottery. Thereby with regard to regulation of online lotteries GST council may refrain from taking a punitive decision as it would be left open for the state government to take an independent assessment of the situation.
Lottery and betting may be in seen with a filtered glass, still, the fact of the matter is that it brings revenue to the government, employment to people and a sense of pleasure to player. GST Council shall do its best endeavor to settle the chores of state government and improve the tax system on a structural level.
(The author is a Senior Partner at AMRG & Associates. Views expressed are the author’s personal)