The Supreme Court in a recent ruling said that GST is applicable on the sale of lotteries, gambling and betting. This would mean that 28% GST would be applicable on sale of lottery tickets. While this would not impact the money a winner gets on hand, it could impact the business as a whole
Some of the Indian states including Sikkim, Punjab, Goa, Maharashtra and Kerala, have lotteries. According to industry estimates lottery in India is Rs 50,000 business where state governments more or less dominate.
The question now is whether lottery sellers would pass on the GST cost to the consumers, by increasing the price of the lottery tickets, or reduce the prize money. The latter may not be possible, say tax experts.
“The most important aspect in the Supreme Court order is that the value of prize money cannot be reduced from the value of services rendered to the service recipient by way of sale of lottery tickets. This is specifically in light of the valuation provisions which specifically includes and excludes certain items and hence the reduction in case of lottery tickets is ineligible”, said Abhishek A Rastogi, Partner at Khaitan & Co.
Lottery under the erstwhile tax regime attracted favourable tax rates—that is it attracted minimal or nil tax across states. Lotteries, across India, are either run by state governments or external parties licensed by state governments said people in the know.
The other two important points related to inclusion of lottery tickets within the meaning of goods under purview of actionable claims. The point which the court agreed is that the petitioner could challenge the rate of 28% in case of lotteries run by state and lotteries operated by states, say industry experts.
The problem for taxing lotteries was around categorisation. This is mainly because lotteries are neither goods nor services. Many now fear that the taxation could impact the way the business is done. Revenue collected from lottery business is one of the main sources of income for several state governments. Proceeds from lottery have grown ten times from around Rs 500 crore to about Rs 5,500 crore for Kerala government, for instance.