Government notifies 8-member committee to decide lottery GST rates; panel to submit report by next GST Council meeting

As reported by us earlier, the GST Council in its meeting on 10th January has recommended the formation of a Group of Ministers (GoM) panel to look into the differential GST rates on lottery tickets and tax issues arising from lottery sales.

According to media reports, the central government has now issued a statement that an eight member GoM headed by Maharashtra Finance Minister Sudhir Mungantiwar will look into taxation issues relating to the lottery industry.

The other members of the committee are West Bengal Finance Minister Amit Mitra; Kerala Finance Minister Thomas Isaac; Assam Finance Minister Himanta Biswa Sarma; Punjab Finance Minister Manpreet Singh Badal; Goa Panchayat Minister Mauvin Godinho; Karnataka Finance Minister Krishna Byre Gowda, Arunachal Tax and Excise Minister Jarkar Gamlin.

As per the Terms of Reference (ToR) for the GoM, the panel will see whether the dual tax structure for state authorised and state run lotteries can be continued or whether a uniform rate can be prescribed for both.

It would also suggest whether private persons authorised by the states are misusing the lower rate and getting enriched themselves at the cost of the state and suggest measures to curb it.

The GoM is also likely examine issues related to enforcement including the legal framework, so as to prevent evasion of tax on lottery and suggest appropriate tax rate to address the problem.

The committee is likely to submits its recommendations on whether a change is required in the present taxation structure for lotteries before the GST Council meets again.

Gaming Legal & Regulatory

Seven online lottery parlours raided in Mumbai for GST evasion

Seven online lottery centres were raided at different locations in central Mumbai for alleged evasion of Goods and Services Tax (GST) as per a PTI report.

As per the news report, the Mumbai police crime branch arrested 11 persons for issuing hand-written lottery tickets instead of online lottery tickets printed on government or RBI paper as required under the Lotteries (Regulation) Act and Rules.

“During the raids, police have recovered 11 computers, hard disks, CPUs, five mobile phones and cash worth over Rs 1 lakh. The owners of the online lottery centres used to give hand-written tickets, of the various online lotteries, including Goa’s authorised lottery ‘Lucky Four’, instead of the printed tickets,” an unnamed official involved in the raids told the press.

Apart from booking those involved in running the lottery terminals for GST evasion and violation of tax laws, an offence was registered under section 294A of the Indian Penal Code (IPC), 1860 for illegally selling lottery tickets. The accused were also booked under sections 420 (cheating and dishonestly inducing delivery of property), 465 (forgery), 468 (Forgery for purpose of cheating), 471 (using as genuine a forged document) of IPC and under sections 4(a) and 7(3) of the Lotteries (Regulation) Act, 1998.

Lottery distribution companies have protested against the 28% GST on face value of lottery tickets which they claim will make the business unsustainable. In September this year, India’s leading lottery distribution companies were raided in Punjab for GST evasion. The charges leveled against them at the time included payment of tax at a lesser rate and non-filing of returns.

Legal & Regulatory

Calcutta HC rejects plea to exempt lotteries from GST and reconsider existing rate structure

A single judge bench of the Calcutta High Court rejected lottery operator M/s. Teesta Distributors writ petition to exempt lotteries from the ambit of the Goods and Services Tax (GST), rejecting Teesta’s contention that lottery tickets were an actionable claim and outside the definition of goods.

The bench comprising of Justice Debangsu Basak also rejected Teesta Distributor’s claim that the dual taxation structure of 12% GST on lotteries sold by state governments within the state and 28% GST on lotteries sold outside the organising state by private distributors is per se discriminatory and liable to be struck down.

As per a report in Live Law, Justice Basak held that lotteries fall within the ambit of actionable claim as per the constitution bench decision of the Supreme Court in Sunrise Associates v. Government of  NCT of Delhi.

The judge further held that the definition of ‘goods’ under Article 366(12) of the constitution is broad enough to allow legislatures to classify lotteries as goods and charge tax thereon. The order further noted that Schedule III of the Central Goods & Services Tax Act, 2017 and corresponding state laws, exempt actionable claims except gambling, betting and lotteries from being treated as supply of goods or services.

The High Court held that since lotteries have not being afforded the exemption from being treated as supply under the CGST Act, it would not be possible to exclude lotteries from the purview of GST and consequently, tax would be attracted on sale of lottery tickets under the category of goods.

While holding that differential levy of 12% and 28% GST on different kinds of lotteries is permissible, the court noted that legislatures have wide latitude in categorising and differentiating between various products and held:

“The Goods and Services Tax Council established under Article 279A of the Constitution of India at its 17th meeting deliberated extensively with regard to the rate of tax to be imposed on lotteries. Differential rate of tax was introduced in the 17th Goods and Services Tax Council Meeting held on June 18, 2017. The States before the Court were present in such meeting. It was after extensive deliberations that, the GST Council had approved the rates as presently obtaining in respect of lottery. It is within the domain of such Council to decide the rate of tax.”


Govt earns Rs. 3,950 crores from GST on lotteries

Data released by the All India Federation of Lottery Trade (AIFLTAI) has revealed that the government has earned Rs. 3,948 crores through Goods and Services Tax (GST) on lotteries for the period July 2017-March 2018.

Out of the nine states that currently permit lotteries, West Bengal has contributed the maximum amount of Rs. 2,150 crores towards GST followed by Kerala which has contributed Rs. 908 crores and Maharashtra Rs. 797 crores (see table below).

Apart from GST, lottery proceeds of Rs. 1,852 crore have been contributed to state government exchequers for good causes. The Kerala government has mopped up a whopping Rs. 1,691 crores revenue from paper lottery ticket sales. The entire funds generated from sale of Kerala lotteries are utilised for social schemes such as treating cancer patients, providing education to girl child, providing for healthcare facilities etc.

Other state exchequers have not received any substantial revenue from starting lottery schemes as most of the proceeds from lottery sales (apart from payout to winners) is cornered by private lottery companies appointed as distributors or marketing agents by the states.

Table Credit: Economic Times

Currently, a GST rate of 12% is imposed on lotteries organised by the state government which are sold within its jurisdiction, while a 28% tax rate is imposed on lotteries marketed and sold by state governments in other states. Centre and states split the GST revenue received 50:50.

Business Gaming

Kerala FM hails GST rate on lottery tickets, private operators federation expresses unhappiness

Kerala Finance Minister Thomas Isaac expressed satisfaction at the Goods & Services Tax (GST) rate on lottery tickets and said that Kerala played a major role in getting a differential rate on lotteries run directly by state governments and those authorised by state governments but marketed by private distributors.

“Kerala’s role in formulating the GST was appreciated and we stood our ground on a few issues and these were accepted. Lottery ticket sales will be only profitable for the state-run lottery as its tax rate has been fixed at 12 per cent, while for other state lotteries, the tax rate has been fixed at 28 per cent. In the coming days talks will be held between the representatives of lottery sellers and agents with regards to the new sharing of the commission,” Isaac was quoted as having said, as per media reports.

Meanwhile, the All India Federation of Lottery Trade & Allied Industries expressed unhappiness at the 28% GST rate on the face value of lottery tickets sold by private distributors.

The Lottery Federation urged the government to levy GST only on the margin retained by the operators after paying prizes and not on the face value of the lottery ticket.

The federation while asking the government to reconsider the rates and the manner of imposition of tax, noted that over 25 lakh persons livelihood will be affected due to GST in its present form.

The tax rate on lotteries was one of the most contentious issues at the GST Council meeting on 18th June. Union Finance Minister Arun Jaitley said that the dual tax structure of 12% GST on state-run lotteries and 28% GST on state-authorised private lotteries was decided keeping in mind the strong stance taken by the Kerala government.

Read more about Kerala lottery.

Legal & Regulatory

GST Council decides dual rate structure for lotteries: 12% for state-run lotteries, 28% for state authorised private lotteries

Union Finance Minister Arun Jaitley  announced a dual GST rate for lottery tickets in a press conference after the GST Council meeting today.  Jaitley noted that GST on lottery tickets was one of the most contentious and hotly debated topics in the GST council and several hours were spent discussing the issue.

While the government of Kerala which conducts its own lotteries, without involving private lottery distribution companies, wanted the highest GST rate of 28% on lotteries (to deter private operators from selling lotteries within Kerala), some other states wanted a lower GST rate.

Finally, the GST council decided that there would be a dual rate of charging lotteries, wherein lotteries operated by state governments without the help of private distributors or marketing agents would be charged a 12% GST rate, while lotteries operated by private distributors would be charged the highest tax rate of 28%.

At present only the state of Kerala operates its own lottery schemes without involving any private companies. Other states like Maharashtra, Goa, Sikkim, Mizoram, Nagaland, Punjab, West Bengal etc. have authorised private distributors to sell and market their lottery schemes.

Jaitley also announced that GST would be charged on the face value, i.e. the price of lottery tickets and not on the margin retained by the government or distributors.

Previously, the central government has sought to levy service tax only on the margin retained by private lottery companies. Lottery companies have noted that the higher rate of 28% and that too on the face value of the tickets would spell doom for the business.

It seems that the GST Council has taken a conscious decision to impose a high rate of tax on private lottery companies to make the business unsustainable. Private lottery operators have often been accused by law enforcement agencies of committing fraud and evading taxes.

Business Gaming

GST council announces 28% tax on casinos and betting; 18% tax likely on skill games; lottery tax yet to be announced

The GST Council, a constitutional body has announced tax slabs for most goods and services in the council meeting held in Srinagar on 18th and 19th May. As widely predicted, gambling and totalisator services provided by a race course as well as betting with licensed bookmakers in race courses have been placed in the 28% tax slab.

Further, entry fees charged in casinos or other entertainment events will also be charged 28% GST. It is understood that at present, there is no proposal to impose an additional cess on gambling and betting activities.

Union Finance Minister Arun Jaitley in his press conference yesterday indicated that since entertainment and luxury taxes have been merged with service tax in GST, it would only be fair that cinema halls, casinos and betting centres are placed in the highest tax slab of 28%. Currently, casinos in Goa pay a 15% gaming tax on their revenues while casinos in Sikkim pay a 10% gaming tax, in addition to a Rs. 1,000/- tax on the entry of every visitor.

While the 28% tax may prime facie seem higher than the current taxes paid by casinos, industry experts believe that with the availability of input credit on the goods and services (which at present is not available on the entertainment taxes paid by casinos) and with the abolition of the Rs. 1,000/- entry tax,  the gambling business may not be affected by the announcement of the GST council.

Experts further believe that the announcement of a unified taxation system for the gaming industry will only be beneficial in the long term.

Online skill games, which do not fall within the ambit of gambling could fall within the category of  ‘all other services not specified elsewhere’ and be subject to a 18% GST rate. Again, while this is slightly higher than the 15% service tax currently paid by online rummy, poker and fantasy sports operators, with the seamless availability of input credit and easier compliance mechanism, the sector may not be significantly impacted in the long term.

It is understood that the taxation rate on lottery tickets or service provided by lottery distributors has not been announced by the GST council. A decision on the taxation rate for lotteries is expected in the coming weeks. However, since lotteries fall within the definition of actionable claims, which have been categorised as goods under the GST law, it is believed that lotteries would fall within the 28% tax bracket.

Business Gaming

Government likely to set 28% GST rate for lottery tickets

It seems that the central government has made up its mind to put lotteries in the highest GST slab of 28 per cent, as per a recent report in the Economic Times.

The report quotes sources as saying that both lotteries and gambling would be kept in the highest tax bracket. The model law for GST passed by the Parliament places actionable claim (Supreme Court judgments have stated that lottery tickets are actionable claims) in the category of ‘goods’ and not ‘services’, making it likely that the highest rate of tax will apply to lottery tickets.

Earlier, Revenue Secretary Hasmukh Adhia had indicated that gambling and betting would be taxed at a rate higher than 18 per cent.

GST rate of either 12 per cent or 18 per cent would be applicable on services, while some categories of demerit goods are likely to face a GST rate of 28 per cent or more. It is also understood that the central government is likely to charge GST on the ‘face value’ of lottery tickets and not on the operators margin, as per the report.

The fitment of goods and services into different categories of rates is likely to be finalised in the GST Council meeting in Srinagar on 18-19th May.

Most private lottery operators however have opposed the move to include lotteries in the highest GST rate and the proposal to charge GST on the face value of lottery tickets.

However, Kerala Finance Minister Thomas Issac has supported the move to levy a higher GST rate, saying that private lottery operators do not conform to the Lotteries (Regulation) Act, 1998 and Rules framed thereunder.

“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” he added.

Incidentally, the Comptroller and Auditor General of India (CAG) in its recent performance audit of lotteries operated by the Mizoram government and report on the Nagaland government finances has severely indicted private companies for defrauding customers and the state governments.

The CAG reports indicate that some private companies have collectively not deposited dues worth over Rs. 26,000 crores to the Mizoram and Nagaland governments.

The scathing reports, unsparing in their criticism of lotteries operated by these companies, further point out the possibility of rigging or manipulation of the winning numbers by private companies, flagrant violations of the Lotteries (Regulation) Act and Rules, vulnerability of computer systems of the private operators conducting lotteries and rampant tax evasion.

It is possible that the central government has taken cognisance of these CAG reports and decided to impose a higher GST rate on lottery tickets, to discourage the appointment of private companies as lottery agents and distributors.

Business Gaming

Betting & gambling may attract higher GST rate says Revenue Secretary

Union Revenue Secretary Dr. Hasmukh Adhia in an interview to the Indian Express today stated that activities such as betting and gambling could attract  Goods & Services (GST) tax rate higher than 18 per cent.

Adhia noted that while most services could attract a GST rate of 18 per cent, services which at present along with Value Added Tax, Entertainment Tax and other taxes  have a combined tax incidence of more than 20 per cent or 28 per cent will attract a higher rate of taxation than 18 per cent.

“We’ll see if there are any such services which are to be charged at higher than 18 per cent. We are yet to study the betting model and the gambling model. There are taxes on those also. We don’t know what is the existing (total) entertainment tax and VAT on these activities” said Adhia.

Adhia also said that the item-wise rate structure under the new GST regime would be done in May or even closer to the expected roll-out date of 1st July, 2017 to avoid arbitrage opportunities. He however added that the final decision in this regard will be taken by the GST Council.

The Goods and Services Tax (GST) is touted as the single-biggest indirect tax reform in India which will subsume a large number of state and central taxes and levies, including all taxes on gambling, betting, lotteries and other kinds of games, including skill games.

Last year, the Parliament passed the Constitution (One Hundred and First Amendment) Act to enable implementation of GST within one year. A few days ago, the Lok Sabha passed four GST Bills to ensure smooth roll-out of the new taxation regime.

Legal & Regulatory

Sikkim HC upholds constitutional validity of service tax on lottery distributors, surprisingly holds service tax on lottery sales non-ascertainable

A division bench of the Sikkim High Court comprising of Chief Justice Satish K. Agnihotri and Justice Meenakshi Madan Rai upheld the constitutional validity of service tax imposed on a person engaged in promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner vide the Finance Act, 2016, as reported by Live Law.

However the High Court while upholding the constitutional validity of amendments to Section 65B of the Finance Act, 1994 that imposed service tax on promotion of marketing of lotteries noted that there is no mechanism to ascertain and compute the consideration involved in the service rendered by lottery distributors or agents and consequently service tax on lottery distributors cannot be implemented or collected by the authorities.

The lottery distributors who approached the Sikkim High Court were Summit Online Trade Solutions Pvt. Ltd. (Sugal & Damani Group) and Future Gaming & Hotel Services Pvt. Ltd. (a company promoted by fugitive lottery king Santiago Martin).

Interestingly, in 2015, a division bench of the Sikkim High Court had struck down amendments to the 2015 Finance Act imposing service tax on the same lottery distributors. Surprisingly, Justice Meenakshi Madan Rai was also a part of the 2015-bench that held service tax on lottery distributors to be unconstitutional but within a span of one year delivered a judgment with a completely opposite conclusion.

While the 2015 amendment to the Finance Act, 1994 was struck down, service tax on lotteries was however sought to be reintroduced in 2016 by replacing the sub-section with minor amendments (although in pith and substance both the original and replaced sub-sections were the same).

It may however be noted that the acriminous and lengthy legal battle  over the course of the past decade by lottery distribtutors is likely to end soon, as the new Goods and Services Tax (GST), which is set to be implemented from 1st July, 2017, will subsume service tax as well as lottery, gambling and betting tax.