GST Council meeting likely to witness a heated debate over lottery rates

If the rate for all lotteries is hiked to 28 per cent, it would lead to a revenue gain of about Rs 1,250 crore, according to government estimates
The Goods and Services Tax (GST) Council meeting on Friday is likely to witness a heated debate over the levy on lotteries, with the Centre pushing for one rate and Kerala batting for the continuation of the current dual structure, said official sources. 

In an earlier meeting, the matter was referred to Attorney General (AG) K K Venugopal, who reportedly said neither structure violates the constitutional provision of Article 304 on the freedom of trade. He asked the Council to take a call on this, said sources. “The GST rate on lotteries will be taken up by the Council on Friday. Hopefully, we will arrive at a consensus,” said an official. A consensus seems like a far cry, though.

Currently, the GST rate on state government lotteries is 12 per cent; the rate is 28 per cent for those authorised by state governments but run by private agencies. The Centre is of the view that the dual rate is being misused by various private parties. 

If the rate for all lotteries is hiked to 28 per cent, it would lead to a revenue gain of about Rs 1,250 crore, according to government estimates.

Kerala Finance Minister (FM) Thomas Isaac had pressed for voting in the June meeting. Till now, all decisions of the GST Council have been arrived at by consensus. Article 304 of the Constitution empowers the states to impose reasonable restrictions on goods imported from other states. They also have the liberty to impose on such goods a rate of tax that is the same as that on goods produced within the state.

An official aware of the developments said the GST Council would have the AG’s views and also the group of minister’s (GoM’s) recommendations of a uniform rate. The GoM is led by Maharashtra FM Sudhir Mungantiwar; it prefers a uniform GST rate on lotteries, which could be either 18 per cent or 28 per cent. 

Kerala, however, is not in favour of either increasing the rate on state lotteries or decreasing the levy on private ones. The state government fears changing the rate would affect thousands of agents and sellers, besides the revenue of states and the Centre.

Kerala FM Thomas has said lottery distributors want to enter the market with a reduced GST rate and “plunder” the people. The state also uses money from lotteries for welfare schemes.

“Goa, Maharashtra, and Assam are, however, keen on a rate cut on state-authorised lotteries,” said a central government official, who did not want to be named.

Assam is a strong advocate of a uniform tax rate of 18 per cent, arguing that the Northeastern states lacked the ability to operate a lottery on their own and were therefore suffering.

By law, private players cannot run the lotteries. Entities such as Sugal & Damani (S&D) and the Esssel group work as commissioning agents for the government. Unlike state-run lotteries, authorised lotteries can be sold outside the state as well.

Only Maharashtra, Goa, West Bengal, Punjab, Kerala, Arunachal Pradesh, Mizoram, Sikkim, and Assam’s Bodoland area run lotteries. The rest have banned them.

Sources said some of the lotteries worked on a hybrid model, running in the name of the state but were effectively private ones. Official sources at the Centre said the different tax rates let such lotteries exploit customers.

Kamlesh Vijay, group chief executive officer, S&D, said the difference in the tax rate on the same commodity acts as a tariff barrier for smaller states such as Goa, Sikkim, and Arunachal, when their tickets were sold in West Bengal or Kerala.

He added the business had suffered substantially because of the two-rate structure.

Vijay said there should be no GST on the prize component — 60 per cent of the face value of tickets, which also includes margins of retailers and agents.  

Cloud on consensus

If the GST Council resorts to voting, the following is the power of the Centre, states: 
  • Centre 33.33%
  • States put together 66.66%
  • Decision can be taken only with 75% votes
  • The Centre can block any decision
  • Twelve or more states together can also block any decision
Note: The Council has taken all decisions by consensus so far

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