Who hasn’t tried their luck buying a lottery ticket, expecting the wheel of fortune to turn in their favour? But, currently, it is the lottery industry in India that is in need of some good luck.
This is because, after the goods and services tax (GST) came into effect in July 2017, the lottery business has run into crisis for two reasons—one, dual taxes as lottery is taxed under two tax brackets, i.e. 12 percent and 28 percent, and issue of taxable value on lottery.
The issue of taxes
The levy of GST is on the face value of lottery tickets, including the prize money awarded to winners. And, this has crippled the lottery industry by the rampant increase in illegal lottery. Additionally, it has also affected the tax collection of the government.
So, before GST was levied on lottery tickets, around 90 percent would go for the price payment for a Rs 100 ticket. But, after the imposition of GST, only 60 percent of the prize money is paid to the winner.
The face value of a lottery ticket is always inclusive of tax.
Before GST came into effect, the overall tax incidence of service tax and lottery tax was 6.71 percent on the face value. But, now, it is nearly 28 percent on the face value, including the prize money, which is a 300 percent increase in the tax.
In addition, it is estimated that the GST collection from lottery should be at least Rs 12,000 crore at an average GST rate of 20 percent on the face value. But, only Rs 3,725 crore has been collected in nine months in FY 2018-19, according to the answer to a query in the Rajya Sabha.
This shows that the GST collection by government is less than 50 percent of the potential at present.
The lottery industry has been hit hard due to GST
Kamlesh Vijay, the Group CEO of Sugal & Damani - one of the largest marketers of state government issued lotteries in India, said that the estimate of the lottery market in India before GST was around Rs 60,000 crore, but the current estimate is Rs 10,000-12,000 crore.
He also explained how dual taxes were impacting the lottery space.
“Currently, 12 percent GST is being charged on lotteries run by state governments (a lottery not allowed to be sold in any state other than the organizing state) directly, while a 28 percent tax rate is being levied on the lottery tickets authorized by state governments (a lottery which is authorized to be sold in state(s) other than the organizing state also). This huge difference in the tax rate on the same commodity acts as a tariff barrier for smaller states like Goa, Sikkim, Arunachal etc when their tickets are sold in other bigger states like West Bengal or Kerala.”
Members from the lottery industry, like Sugal and Damani group, have been urging the GST Council to look into the tax issues. However, no solution is in sight even after the 35th GST council meeting due to lack of consensus.
A law committee meeting, to be held on September 6, will be discussing the GST on lotteries, and the discussions will be fed into the GST Council meeting which is to take place later this month.
But, why are the concerns of the lottery industry important?
The business which generates employment opportunities has now reached a situation where lottery sellers have shut shops.
“Large number of lottery sellers have shut shop in Punjab and Maharashtra especially. It (GST) has a lesser impact in West Bengal and Kerala,” said Vijay.
He added that the demand (for lottery tickets) had come down and people had shifted to other illegal means. It has affected the livelihood of many people, he added.
Lottery money can be useful for sports and public welfare
But, there is more to it as the revenue generated from the lottery business can benefit the economy in many ways.
“Lottery can generate revenue for several things like UK. All their sports team are being funded by lottery revenue. China is doing two types of lotteries -- one is for people welfare lottery and other is sports lottery. For people welfare, they are generating net revenue of around USD 8-9 billion per annum. For sports they are generating USD 5-6 billion per annum. So, total lottery revenue they are generating around USD 16-17 billion. Singapore is generating USD 4 billion net revenue,” pointed out Vijay.
Hence, he thinks that in India, too, the lottery money can be used for funding medical services and for development of sports.
Ask Vijay about their plans ahead for Sugal & Damani, the group that has an annual turnover exceeding Rs 1,000 crore today and 75 percent market share in the online lottery business, and he says that due to the “uncertainty in terms of GST we are not able to plan. We don’t know whether there will be single tax. So, we cannot plan for the long term.”
Sugal & Damani had in excess of 30,000 point of sale (POS) but now has been reduced to less than 10,000 POS and it has been spiraling down ever since the 17th GST council meet.
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