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Horse Racing Experts Feel 'Government Is Milking a Skinny Cow', as GST Fails to Give a Boost to the Sport

The GST may be good for the economy overall. Time will tell. Subsuming taxes is never a bad idea and simplification of tax regime is welcomed by most stakeholders of India Incorporated. When it comes to horse racing industry, many feel that the sport is cash rich and an absolute luxury given the fact that it is only the ones with deep purses who can afford these beautiful thoroughbreds. As does the GST council and the finance ministry!

Chaiti Narula | News18 Sports

Updated:December 7, 2017, 4:31 PM IST
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Horse Racing Experts Feel 'Government Is Milking a Skinny Cow', as GST Fails to Give a Boost to the Sport
(Image Credits/rwitc.com)
The GST may be good for the economy overall. Time will tell. Subsuming taxes is never a bad idea and simplification of tax regime is welcomed by most stakeholders of India Incorporated. When it comes to horse racing industry, many feel that the sport is cash rich and an absolute luxury given the fact that it is only the ones with deep purses who can afford these beautiful thoroughbreds. As does the GST council and the finance ministry!

While a part of that is true, the turf clubs actually make money through absolutely legal wagering. Turf clubs today are bleeding red, thanks to the over taxation on the sport and dwindling footfalls on the back of that fact. Add to the fact that it gives rise to illegal gambling to a sport where gambling on the totalisator and official bookmakers ring is absolutely legal in India. However you have the RWITC committee that works day in and day out to sustain the biggest race centre in India despite all the impediments.

“It is an absolute failure on the part of GST council’s understanding of the sport. When one milks a cow it better be healthy. You can’t milk an already skinny cow. What the government is doing is milking a skinny cow,” says ad film maker and racehorse owner Shiven Surendranath.

“The unfortunate part is that the GST Council has failed to see empirical evidence available in India itself before coming to this decision of taxing Race Clubs at 28% on their betting. RWITC was paying a 20% tax to the Maharashtra Government. This is a ridiculous tax rate on wagering on the sport. The result was that the club was paying the state government well under Rs 20 crores annually. I can safely say that RWITC’s turnover that is lost to illegal betting easily runs to over a thousand crores,” observes Teghbir Brar who’s a breeder, owner and racing patron.

Brar like many others are vocal about what the regime has done to the sport. They collectively hold that the council has not researched well to understand the impact of these haphazard decisions. Let’s bring in a total outsiders viewpoint on this. Jayjit Bhattacharya, Partner at KPMG, who has nothing to do with the sport of horse racing says that is prevalent in many other industries as well.

“You cannot just increase the tax bracket and think that the businesses will survive with their existing models. This is a classic spoke in the wheel leading to losses for many other sectors too. In fact take the example of European nations, Singapore and many other countries. The minute you bring the taxes down, the tax compliance overall goes up! Something so simple and proven time and again and yet we fail to learn these lessons. The government needs to recognize this. And this is for every industry that is impacted due to a sudden surge in taxation. You could give a rise to corruption with high tax brackets as people would find it easier to evade taxes! As for the breeding industry, they will find it difficult to cope if they are not used to such high taxes on their PNL’s. You will do more harm than good.”

Sources in the finance ministry say that the decision to tax 28% on a sport such as horse racing was done to trap the tax evaders. The ground reality and outcome sadly is far away from the objective.

So what really happens when you decide to tax 28% on a sport like horse racing? If the government feels they will collect higher taxes, they are far away from touching base with brass tacks. The legal bookmarkers under-invoice. Illegal bookmakers give better returns. That collection never goes to government. Also, it is absolutely illegitimate. When you bet Rs 100, your actual bet value is Rs 72. Then you may or may not win that race. To top it, if you back a backed down favorite, you return home with a hole in your pocket. You may make cash on a longer odds if you back that dark horse in the fray, but the amount that gets cut in taxes may narrow down your risk appetite. Not just that, you will be further taxed on your winning amount. How does that even make sense,” questions Surendranath who has also served the Royal Western India Turf Club in various capacities.

The overall pool shrinks. A shrunken tote means a domino effect on the club, the connections and eventually the government whose tax collection from the turf will go down. Take the example of Bangalore Turf Club. It has had to suspend all the race meetings as the license was not renewed and it now faces a dispute on the taxation front. In fact, it was the richest turf club in terms of its tote collections as the state government taxed the collections much lower in Karnataka than the other racing states pre GST.

The BTC reported a turnover of close to Rs 2000 cr in FY17. Of the 10% commission, it paid 4% to the state government and spent 6% on other administrative expenses. After the GST regime, the BTC has been asked to pay up 28% with full input tax credit. “The GST regime will kill a thriving industry,” says Teghbir. “I’m sure that those who have decided to fiddle with what is a very fine balancing act when it comes to revenue have never been to a race meeting or visited a stud farm ever. World over breeding of horses is encouraged by governments. It is even subsidized. Breeding and horse racing as an industry provides jobs. It is an environmentally cleaner option than any kind of intensive farming too. Breeding horses means no using of pesticides on pasture, paddocks are pretty much left to grow naturally. Further, breeding horses is a very viable and well-paying animal husbandry option and it’s agricultural in every way. Without any experience as a farmer, any breeder would struggle. Breeding horses is simply put a value added agricultural system,” he adds.

Every horse racing patron, turf club and committee member of different clubs bet against hope to get some relief from this unreasonable tax slab of 28% on the sport. “Our racetrack and off track betting project in Punjab was a straight up project worth Rs 600 crores of FDI. It was going to bring at least 10,000 permanent jobs and a lot of welcome revenue for a cash strapped state. The project is now dead in the water. No one in their right mind will invest in a racing project where the tax rate is 28%,” observes Brar.

Simply put if the tax bracket is down the clubs will be able to run the sport more effectively as they will stand to earn revenues through legal bookmakers as no one would resort to illegal gambling as compliance will increase. It also ends up providing higher stake money to owners. Effectively owners would race for the the art and science of the sport than fix races and gamble away through illegal bookmakers trying to make ends meet to maintain their racehorses and focus on their athlete, which is the thoroughbred racehorse.
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