Can States rely on betting to fill coffers?

In these Covid-19 times, the Government of India and the State governments are looking at avenues to spur their incomes to support the state administration, which has been hit hard by the pandemic and lockdowns. The opening of liquor stores in States with a higher rate of tax, which went up to 70 per cent, did not stop tipplers from lining up in serpentine cues. Subsequently, realising that controlled distribution through physical premises was not the solution, leading e-commerce operators having been given permission to home deliver liquor in some States. This also leads to the question, why have we taken the opposite approach and prohibited online betting, be it on horse races or sports?

In fact, during the Indian Constitutional debates, an apprehension was expressed on banning betting and gambling completely. On receiving feedback from one of the legislators, that a particular State derived substantial revenues from betting services, the entry of betting and gambling was designated in the State list, where each State has the power to regulate these activities. In the 1950s, however, the advent of the Internet and the availability of services remotely was not foreseen, thus the challenges of whether sports betting, like betting on horse races, should be regulated — and if yes, then should this regulation extend to online betting on sports and horse races.

Push to legitimise betting

A historically traditional form of gaming, that is, the lottery, was used to fund societal projects like the Great Wall of China and the British Museum. In the Indian context, the British used lottery funds in 1813 for the construction of the Town Hall in Calcutta; the Moore Market, the Ripon Building and the Victoria Public Hall in Chennai, and so on.

While investigating issues pertaining to match fixing/spot fixing, the Mudgal Committee appointed by the Supreme Court recommended that sports betting be legalised. In its report, it rationalised that besides being a source of revenue, it would help protect the integrity of sports. With regulated sports betting, the identity of the punter and the event on which a bet is being placed would be known. This would serve the purpose of identifying suspicious betting patterns, and when these are identified, there could be an immediate investigation of the event. A person fixing a spot/match, in order to gain from his nefarious activity, would have to bet a substantial amount on the event. This would trigger the betting pattern and the players, match officials would be immediately investigated.

If suspicious activity is found, not only will the relevant stakeholders be taken to task, the bet would also be voided — and, therefore, the punter would not be able to make any money nefariously. There is also a perception that bookmakers may themselves engage in fixing. What has, however, been observed in the international scenario is that licensed bookmakers act as guardians of the sport, as their odds are calculated based on a fair match. So if someone fixes an event, they stand to lose a substantial amount of money besides their licences, if found to be involved.

No action yet

The Lodha Committee confirmed the Mudgal Committee’s recommendation, and the Supreme Court, in its judgment directed the government to consider regulated sports betting. The Law Commission report, which followed, made some important recommendations: if sports betting — which is estimated to have an annual turnover of ₹3,00,000 crore — cannot be prohibited, it should be regulated.

Considering that sports betting is a State subject, either the Union government could prepare a model law that the States could adopt; or, two or more States could empower the Union overnment to legislate, considering that there would be mobility of betting services amongst the States. A gambling commission would also need to be established, with small bets having easier access but larger bets requiring proof of financial strength.

But even after the Law Commission’s recommendation of July 2018, neither the Union Government nor a State governments has taken up this issue.

Anomalies also exist: Online sports betting over the Internet is legal in Sikkim; betting on Teer (an archery-based lottery) is legal in Meghalaya; betting on horse racing is legal in 11 States,; casinos are legal in Sikkim and Goa; and the lottery is legal in nine States and one Union Territory. However, even in the age of Internet and artificial intelligence, except for a limited manner in Sikkim, online betting on horse racing and sports is largely illegal.

Reasonable tax rate

While regulating, it is imperative that a rational tax structure is proposed. The current GST rate of 28 per cent on the face value of the bet is one of the highest in the world. Worldwide, gaming tax is generally imposed on the gross gaming revenues (GGR), which is revenue in the hands of the operator after paying out the winners. If the tax being imposed was based on the GGR, 28 per cent tax rate would be acceptable.

However, the current rate of 28 per cent on face value would be similar to a gaming tax based on turnover. Some jurisdictions do impose tax based on turnover, but this is normally not more than 1 per cent, as in Ireland, and even much lower in countries such as Cyprus.

With a high rate of tax, the gaming industry will continue to be pushed within the illegal and unregulated sector, where dubious elements thrive and the government continues to lose essential revenue.

It needs to be understood that a higher rate of taxation does not necessarily lead to higher collection. If the tax collection at turf clubs is seen as an indicator, prior to the imposition of the GST, when State entertainment and betting tax was levied, the States had collected approximately ₹389 crore from just three race clubs. This figure dropped to ₹261 crore in 2019-20, while not taking into account any other escalation.

The high GST rate has not only affected tax collection but also impacted lakhs of jobs which are directly and indirectly dependent upon the horse racing industry, the feed-providing agrarian industry and foal production.

Several sport events and horse races have been cancelled due to Covid-19, and our sportspersons are facing acute financial distress. Even the Indian sport federations are facing grave financial issues, with the Indian Olympic Association requesting a financial assistance of ₹200 crore from the Union government to sustain its activities. In the UK, the cost of the London Olympics was largely funded by the money received from the UK Lottery fund. India can also adopt a similar approach of making Indian sport and horse racing sustainable, by regulating online betting on sport and horse racing events whilst using the funds generated from taxing them for necessary causes.

The writer is Managing Partner, Krida Legal

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