Now, 28% tax on lottery tickets under GST

People buying lottery tickets may have to spend more to take a chance on fortune under the goods and services tax (GST), which is expected to be rolled out on July 1. The government is looking to put lottery tickets in the 28% GST bracket, the highest slab, according to people familiar with the matter, according to a report published by The Economic Times. That’s up from minimal or zero tax levied by about a dozen states that have lotteries.

They are either run by these state governments, such as those of Sikkim, Punjab, Goa, Maharashtra and Kerala, or external parties licenced by them. 

The government could levy taxes on the ‘face value’ of the lottery. The face value of a lottery pot comprises three parts – the prize money, government taxes and operators’ margin. 

“GST should only be levied on the operators’ margin. The prize money part comes under direct tax (income tax paid by the winner),” said Rahul Tangri, president, Playwin, an electronic lottery provider to the financial daily.

This could impact the revenue of the state governments aforementioned, as a significant part of the money paid for a ticket goes to them, and even force some operators to shut shop, said experts.

Last month, Business Standard had reported that the Government of Kerala is contemplating a new law to protect its revenue from the lottery segment after the new national goods and services tax (GST) gets implemented. The state's annual revenue from lottery sale exceeds Rs 4,000 crore. 

Around 125,000 people are employed in the sector in Kerala, including the agents and sellers.

Also Read: Kerala govt for new law to protect lottery revenue 

However, Thomas Isaac, Kerala's finance minister told ET, ''Lotteries which are managed by external parties do not conform to any rules laid down in the Central Lotteries Act. These are mostly what you call the lottery mafia."

“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.” 

One problem is that Indian courts have clarified in the past that lotteries are neither goods nor services. Many states and the lottery business are taking the view that, due to this, GST should ideally not apply on lottery tickets.