In the backdrop of the GST Council announcing 28 per cent rate on online gaming/gambling, the experience of betting in horse racing can be used as a template.

The logic of levying 28 per cent GST on online gaming is that it is a pursuit of the rich like buying an AC or a car. But the point overlooked is that this could be applied to “betting” if it were a goods item for the rich. Further these are generally “one off” transactions and not repetitive. “Betting” needs to considered as a “service” that is highly repetitive by nature. It is a regular application of capital looking for a return. With each application, a hefty 28 per cent is shaved off his capital. The capital will steadily whittle away. The source of revenue will disappear.

Lower that entry barrier of high GST and the scenario changes for the better for all. The punter will return , the racing establishment will thrive and the exchequer will be very pleased.

Looked another way, if ₹100 is bet, ₹28 out of this goes as tax and assume about ₹3 goes to the club. The “take” is decided by the club, but lower the better. The amount for left for payout will be ₹ 69. For an odds-on favourite, where 70 per cent have bet on the favourite the punter will be out of pocket.

An attractive alternative is a GST rate of 5 per cent with a club take of 3 per cent, resulting in a reduced deduction of 8 per cent.

But on the flip-side there is a social cost. Gambling is highly addictive. But like alcohol a case can be made for responsible behaviour on online gaming.

A bit on the mechanics. The tax must be levied on the amount bet and and not on the clubs’ take. This method is simple, straightforward easy to monitor. Since it is fully system driven it is difficult to find leakages. It easily applies to all models of betting platforms. The alternative is a tax based on the clubs’ take. Any tax based on the clubs “take” gives much opportunity for manipulation.

Racing model

In a platform similar to the Tote model used in horse racing, GST can easily be applied to the amount bet at a lower rate or clubs’ take at a higher rate. The clubs’ take is set at a “fixed” percentage of the amount bet, with no room for manipulation.

Another betting platform, often used in lotteries, is one based on predefined odds.

There will usually be multiple winners for all bets. The clubs’ take will never be a fixed percentage of total amount bet, but will depend on the number of winning bets in each cycle. With the percentage of the clubs’ take varying in each cycle, an opportunity for manipulation arises. The third is the gaming platform; as the payouts are undefined, the only option is to collect tax on the amount bet.

Though there is much demand for charging GST on the platforms’ take, it would be wise to charge it on the amount bet at the lower rate of 5 per cent. This can be easily be applied to all the platforms.

The writer is a chartered accountant

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