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Private lottery distributors run out of luck post GST

LiveMint logoLiveMint 20-09-2017 Harsha Jethmalani

In a bid to dissuade what is seen as a social evil, but at the same time not lose out on revenues, dual tax rates were fixed on one of the most controversial items—lottery tickets—by the goods and services tax (GST) Council.

Under the new tax regime, state-run lotteries, which do not have private distributors or marketing agents, attract 12% tax, while those operated by private distributors fall under a higher tax slab of 28%.

It should be noted that there is no blanket ban on lotteries in India. Out of 29 states, 16 states have banned lotteries. On the other hand, lotteries are allowed in Kerala, Goa, Maharashtra, Madhya Pradesh, Punjab, West Bengal, Assam, Arunachal Pradesh, Meghalaya, Manipur, Sikkim, Nagaland and Mizoram. In some of these states, private distributors sell and market the state’s lottery schemes.

Pre-GST, a service tax was levied only on the agent’s commission, which was around 10-12% and varied across states, tax experts said. Now, GST is levied on the face value of the lottery ticket.

For the uninitiated, money that an agency/distributor collects from the sale of lottery tickets is segregated into three parts—the prize money, the distributor’s commission and franchisee fee collected by the government. Taxing the face value of a lottery ticket directly impacts the prize money, thus hurting the business of private distributors. Consequently, some of these agencies have revised the price of lottery tickets higher post GST implementation.

However, a larger concern is that a decision to tax lotteries at 28% has led to a sharp surge in illegal lottery trade. This will cause leakage of government revenue from the lottery industry.

“People engaged in illegal lottery trade have no local tax/GST liabilities, they manage to give participants a higher prize payouts (prize money) at 30% less cost than us. Before GST, the lottery industry used to be at the level of around Rs60 crore a day in Maharashtra, post-GST it has reduced to only Rs5 crore a day. Around 70% of the legal sales have shifted to illegal trade,” Rahul Tangri, president—sales & distribution, Playwin, told Mint.

He added that on an overall basis, the pre-GST market size of the lottery industry at the country level was around Rs50,000 crore per annum and post GST it is likely to have shrunk to Rs15,000 crore per annum.

Pan India Network Ltd “Playwin” is one of the largest online lottery companies in India. The company is categorized under the 28% GST slab and has operations in many Indian states wherever lotteries are permissible.

Given this, Tangri fears that authorized lottery distributors may not be able to survive beyond a few months. For some, the closure of the lottery industry can be seen as a positive, but since the business has been thriving for decades now, it doesn’t augur well for employment.

According to some tax experts, more than 10 lakh people are estimated to be dependent on this business for livelihood across the country. Recently, lottery traders from across Maharashtra protested against the 28% GST on online lotteries, said a media report. It further added that many lottery sellers have shut their business and many more are on the verge of winding up.

As things currently stand, it is difficult to conclude who benefits from higher taxes on lotteries. The government not only suffers a revenue loss but has also given an unintentional boost to illegal gambling.

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