With Economy Battered by Covid-19, India Can Get Rs 1L Crore Tax Windfall Every Year by Legalising Gambling

The weeks-long lockdown in India provoked severe withdrawal symptoms—to a certain degree among hopeless drunkards denied liquor and to a severe degree among hapless state governments which were denied revenue from sales of liquor.

Despite loud protestations about morality and the public good, most state governments could not wait to profit once again from the vice.

Likewise, governments are greedily watching the till as desperate smokers return to puffing to their hearts’ content and lungs’ discontent. Millions more are back to chewing gutka while ravenous governments count the rupees.

According to the Reserve Bank of India, state excise duty on alcohol accounts for 10-15% of tax revenue for most states and is the second or third-biggest source of tax revenue. (Bihar and Gujarat prohibit the sale of liquor). Governments are thought to collect more than Rs 40,000 crore a year from the sale of tobacco products.

Despite the opening, the point of this piece is not a harangue about how devilish governments are being by profiting from private vices.

On the contrary, it is a clarion call for governments to clean up and profit from another (arguably) less harmful private vice—gambling and betting (the terms will be used interchangeably here).

With India poised for record-low economic growth and tax collections, there is no better time than now to legalise, organise and profit from an activity that Indians incontrovertibly love—gambling.

How much revenue is at stake here? Hard to say because the industry operates mostly underground and in shady nooks. A report some five years ago by the Doha-based non-profit International Centre for Sport Security estimated that the illegal betting market in India was doing business worth $150 billion, or nearly 10 lakh crore at the exchange rate that prevailed then.

In 2016, India’s GDP was about $2 trillion. In other words, turnover from illegal gambling and betting was estimated at 7.5% of GDP.

In five years, gambling and betting have doubtless grown rapidly, but let us assume for the sake of argument that Rs 10 lakh crore is the total turnover.

Now, if we were to assume a turnover tax of 10%, the potential revenue would be Rs 1 lakh crore, or about the same as Goods and Services Tax (GST) collection in a good month. The assumptions are broad, but they are not outlandish.

You get the picture.

For actual numbers, let us consider estimates from France for what the government expects to earn from betting in 2020 (of course, these are pre-Covid estimates, but this is what a normal year would look like).

The state was projecting tax revenue of €586 million (1 euro equals nearly Rs 82) from sports betting, €420 million from betting on horse races, €66 million from poker, €787 million from taxes on casinos and €2.48 billion from the national lottery and gaming operator La Française des Jeux (which was privatised in late 2019).

That is about 35,000 crore in Indian rupees. Consider the potential in our country.

The gambling/betting scenario in India is quite befuddling. The law makes a distinction between games of skill and games of chance. The former is allowed, but not the latter. However, the rule is not applied logically.

The authorities have contrived to allow betting on horse racing and rummy (supposed to be skill) but not cricket or poker (apparently based on chance). Which is why betting on the Indian Premier League (IPL) happens underground.

A few thousand crore rupees are thought to be bet on every single match. Now imagine if all this were to happen legally, with bookmakers plying their trade in the open and paying their taxes.

Other than trackside betting on horse races, some states also allow lotteries. Kerala, for example, earned Rs 1,273 crore as tax revenue from its state-run lottery in 2019-20. (Lotteries are taxed at 28% nationwide from March 1).

Goa, Sikkim and Daman & Diu permit gambling at casinos. Fantasy games are fine, because they are considered games of skill and not chance. Online gaming is the other big growth area. And yes, gambling is a state subject.

All in all, India has forced most bettors and bookmakers to skulk around in dark corners while a vast underground industry thrives with no regulation and certainly no revenue to the government.

Even the Law Commission in 2018 recommended permitting properly regulated gambling to minimise fraud (match-fixing, nobbling and the like) and money laundering. Click here for the report.

There can be no better time than now, when governments are struggling to raise revenue, to legalise gambling. In addition to the money governments stand to make, it is important to rescue the industry from shady operators. Professionalising betting and gambling is the responsibility of the government.

Gambling may be immoral and abhorrent. But that is not why it is should be illegal. Yudhishthira, who gambled away his kingdom and his wife, won the Kurukshetra war and returned as king of Hastinapura and Indraprastha. Why taint mere mortals?

Besides, who can make the case it is fine for the government to profit from people gambling with their health but become churlish with those gambling with their pocketbook?