Turnover tax could paralyze horse racing

By Sharan Kumar

August 02, 2004

Horse racing in Karnataka will be paralyzed by the four per cent turnover tax on betting on the club operated totalizator pools, which came into effect from August 1. In the last decade, the government of Karnataka, in order to encourage legalized betting allowed the BTC to determine the level of tax on the club operated pools, with the government being guaranteed a minimum sum of money. Last year, it was Rs 9.24 crores and going by the normal hike effected by the government, it should have stood at 10.16 crores. Mysore Race Club too enjoyed a similar benefit.

The Deputy Chief Minister and Finance Minister Siddaramaiah has replaced the compounding tax with the turnover tax while presenting the budget last month, which has far graver implications that envisaged. Right now the turnover at the club pools is around Rs 500 crores and the club’s share in the turnover is six percent. The club conducts all its activities including providing stakes for races and all administrative expenses from the money realized from its commission including giving the government its share as determined from time to time. However, with VAT being in the air, the government has sought to bring the turf club too under the same act by levying the tax on that basis. 

Deputy Chief Minister and Finance Minister Siddaramaiah

If the turf club were to give the government four percent of the turn over, there would be a serious drain on the club’s finances. 94 percent of the amount deposited at the tote is invariably returned to patrons in the form of dividends and considering this striking practicality, subjecting the entire turn over to tax will cause destabilization of the successfully operating tote system of betting and cause collapse of the club’s financial structure, warranting extensive curtailment of racing activities; reduction in employment opportunities, mushrooming of illegal betting and a strongly possibility of reversal of existing trend of increased revenue to the government, with income in future accruing to the government on a regressive scale, following reduced turnover. The tax burden is bound to hit the Mysore Race Club very hard because the club will have to pay to the tune of Rs 3 crores from the existing Rs 35 lakh if the trend of betting were to be maintained. 

The tote tax was compounded in the year 1995 by the then government to encourage betting at the club operated totalizators in support of a transparent and enforceable system of recording bets; enticing betting into official outlets and ensuring prompt tax realization. The beneficial effects of a such a system has resulted in facilitating cleaner racing, placing the sport on a firmer footing and creating a nucleus of owners and breeders in the State of Karnataka. With greater betting on tote, the club also was able to expand its racing programme which also incidentally provided additional employment opportunities to those belonging to lower strata of society. Racing is a highly labor oriented sport.

At the present level of deduction, which is six per cent both at Bangalore and Mysore, the turnover was showing an appreciable rise every year. If the club were to raise its commission in order to generate more revenue as the existing level of deduction is bound to be insufficient, it will have adverse effect on betting, as the returns will be less remunerative. The situation then will become tailor-made for bookies to exploit by offering better returns with them. It is so because bookies collections are not truly reflected in their book of accounts. There are innumerable illegal bookmakers who will exploit the situation as well. The government may not be able to realize the projected Rs 20 crores because the turnover is bound to fall. The totes had successfully attracted majority of the punters to legal channels.

The Bangalore Turf Club is lobbying with the government to change its mind, highlighting the grave danger to the very survival of the sport because of the turnover tax. Mysore Race Club, which is running two mini-seasons on either side of their regular season, is doing so because of the subsidy given by the Bangalore Turf Club. They have already expressed their fear that they may be forced to cancel these extra seasons if they don’t get relief from the government. Race clubs all over the country have benefited by Mysore extending its racing programme by almost 30 days but the cancellation is bound to cripple racing not only in Karnataka but elsewhere in the country as every club will suffer financially.

Unless all persons who are concerned about the racing activity come together and influence the government to change its stand, things can take a very serious turn. With three sitting MPs on its membership roll, Bangalore Turf Club should mobilize enough pressure on the powers-that-be to bail racing out of the predicament it has fallen because of the change in government’s stand.