GST threatens to trip horse racing industry

The horse-racing circuit in India is on its summer break, but off track the industry is lobbying hard to mitigate the effects of a proposed Goods and Services Tax, which officials say may be the death knell for some of the country’s clubs.

The GST is meant to bring uniformity to India’s indirect tax regime, which until now has granted power to various states to determine the amount to be imposed. Under the new legislation, scheduled to come into force from July, the central government  will decide on taxation levels for various goods and services. The changes are expected to help boost India’s Gross Domestic Product by a couple of percentage points and accelerate economic growth.

However, the horse-racing industry, which is already facing difficulties due to widespread illegal gambling, may be crippled if the law is implemented according to current proposals.

Horse-racing in India is a legal sport and betting is allowed. It is played in six states: Karnataka, Telangana, West Bengal, Tamil Nadu, Maharashtra and Delhi.

Annual turnover is estimated at about $350 million, a drop in the bucket when compared with the $150 billion that is thought to be bet illegally every year in India, according to the Doha-based International Centre for Sports Security.

At the moment, these clubs pay varying levels of taxes, with the Mysore Race Club paying as little as four percent, while the Mumbai-based Royal Western India Turf Club pays 20 percent to the state government of Maharashtra.

At present there is little clarity on how much tax the clubs will have to pay once GST becomes payable, however media reports have pegged it at between 18 percent to 40 percent. Clubs are worried that this will force them out of business. The other concern is that horse-racing, along with other betting and gambling activities will fall under the purview of the Sin Tax, which will be levied on activities deemed harmful by the government, such as smoking and drinking. With the clubs reeling due to the impact of illegal betting, the high tax and bad publicity may be the final blow.   

A senior functionary at the Delhi Race Club, who wished to remain anonymous, said that like all other clubs, they were keeping their fingers crossed that the government will hear them out before going ahead with its plans with respect to horse-racing. Delhi Race Club pays 20 percent in tax currently but it relays televised races from other clubs and will face issues if they go out of business. Outside the functionary’s office in the Delhi Race Club, which is opposite the Prime Minister’s official residence, the field wore a deserted look due to the summer break. In a telling reminder of the current central government’s approach to the issue, the road on which the Club stands was recently renamed to Lok Kalyan Marg (Public Welfare Street) from the earlier, eponymous Racecourse Road.   

The clubs are hoping that the GST Council chaired by the finance minister – with whom they met recently to submit a memorandum with their concerns – will give them relief when it meets on 18-19 May in Srinagar, the capital of Jammu and Kashmir.

“We are a small drop in the ocean when it comes to issues related to the GST but we hope the finance minister will take our concerns and demands on board,” said the senior functionary from Delhi Race Club.

Along with Mysore, the Bangalore Turf Club will also suffer heavy losses as it currently pays 11 percent tax. Administrators at the club have already gone public with their worries.

“GST will have a pan-India implementation. How can you bring GST on horse racing which is existent only in six states? We are going to request the council to keep the sport out of GST at the meeting,” Ajit Saldanha, a steward, told the Deccan Herald.

He said the club will be lobbying for a 12 percent tax on income earned, but expressed concern that if it is much higher, the club “may have to shut up shop.”

L. Badri Narayan, a Bombay-based senior lawyer, who is working on cases related to the impact of GST on betting and gambling activities in India said that an increase in tax would lead to more people taking the illegal route to place bets on horse-racing, affecting the clubs and reducing the revenues the government expects to gain. “It should be pegged at a level at which people can comply. For example, due to high tax (20 percent) in Maharashtra, a large number of bets are placed in a non-documented manner. Moreover, the clubs in order to remain in business may themselves encourage offline ways,” he told AGB.  

Another issue is whether horse-racing would fall under the ambit of goods or services. Narayan said that a ticket for horse-racing, like a lottery ticket would come under the definition of an ‘actionable claim.’ But there are different views among experts when it comes to deciding whether ‘actionable claims’ should be considered goods or services.

The current provision holds that services will attract 12 to 18 percent tax, whereas goods will not see an increase.

The GST Council is also expected to address this issue in its meeting.