Photo: Alamy
Photo: Alamy

Opinion | Lotteries should always bear a heavy tax levy

Games of luck that offer little value to people must be taxed at the top rate. Right now, two separate GST rates apply to lotteries. We need an all-India consensus to end this absurdity

In a country like ours, a stroke of luck is what many people pray for to advance materially. To that end, the hopeful keep taking leaps of faith, buying lottery tickets that could multiply their money by eye-popping orders of magnitude. They have no means to work out the probability of a win, which is tiny, typically. Fewer still seem aware that lottery schemes are designed in such a way that the ticket price exceeds a buyer’s expectation of gains—the prize money, that is, divided by the number of tickets sold. To rationalists, it’s a gyp deal. However, as with other irrational indulgences, the enthusiasm persists. Put it down to a habit derived from a Panglossian attitude. The glare of reproach it ought to get, though, is not from our central bank governor, but the taxman. For all the dreams of prosperity and other psychological benefits delivered by lotteries, policy should aim to discourage consumers from such gambles. In other words, lotteries are an ideal candidate for India’s top taxation rate. Unfortunately, the country has no consensus on what rate of goods and services tax (GST) to apply.

So far, the GST Council has been unable to crunch the current dual-rate structure for lotteries into a single rate. State-run schemes, conducted by state agencies with tickets sold within that particular state, are in the 12% bracket. State-authorized lotteries, managed by private operators and sold outside the state, attract the peak rate of 28%. Instead of all these converging to the latter, various forces are tugging in different directions. Kerala reportedly wants to retain two separate rates, never mind the notion of “one country, one tax", while states such as Assam want a lower rate of 18% even for privately-run lotteries. Unable to resolve the issue at its Goa meeting of 20 September, the GST Council has referred the question of lottery levies to a group of ministers headed by Maharashtra finance minister Sudhir Mungantiwar, as reported.

Not all states allow lotteries. Only about a dozen do, but for them, it’s a major revenue source. They are particularly popular in Mizoram, Nagaland, and Kerala, all of which have local industries that employ thousands and contribute to their state coffers. Lottery organizers say that the market, once placed at around 60,000 crore in sales, suffered a blow after the GST regime came into effect. Some argue that the practice of taxing the entire “face value" of a lottery scheme—by a formula that includes prize money—has priced tickets out of the reach of many customers. They want GST to be levied only on the operator margin, as the winner pays income tax anyway on the jackpot. Others complain that the existence of two separate rates puts cheaper schemes at an unfair advantage. This distorts demand. There are elements of truth in all these contentions. On principle, a dual-rate structure is hard to justify. Also, in general, there is no reason why a game of chance that needs no recognizable skill to play should not bear a heavy levy. This would be consistent with the old argument for “sin taxes" being imposed on socially undesirable things that can’t be stopped. Moreover, social observation suggests that lotteries, like other games of fortune, can be addictive. Now, if this were so of all customers, then demand would not fall by much in response to higher prices. To the contrary, though, the Indian market is reported to have taken a tumble. This could mean that Indians can indeed be weaned off lotteries—another reason to slap them with the top rate.

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