The ambiguous legal status of Indian gambling results in a loss of tax revenue. Running on a large fiscal deficit, Bharat authorities strive to solve the negative impacts of COVID-19 on the economy. Good practices from countries like Sweden point to the benefits of regulation and the potential of gambling market taxation.

Unclear Legal Status of Gambling Hurts Tax Revenue Collection

Gambling laws in India vary by the state, while the national framework on the matter is laid out in the archaic Public Gaming Act of 1867. Union gambling taxation is regulated by the Income Tax Act of 1961 and its amendments introduced by the Finance Act of 1986.

The Income Tax Act expressly requires that income from both legal and illegal activities is taxed. Losses are not deductible and citizens are obligated to report all their winnings in their annual tax return. This means any income from lotteries, horse races, card games and any other forms of gambling are subjected to legal tax. Fortunately, there is a non-taxable limit of ₹ 10,000 valid for all personal earnings.

In addition to direct taxes on players' income, registered merchants are required to charge GST (Goods and Services Tax). The law defines a special category of businesses such as casinos and races and sets GST at 28 percent as an indirect tax.

In the end, the confusing legal status of gambling – and the fact that most Indian online casinos like PureWin are run by offshore operators – means that a substantial portion of both Income Tax and GST revenue does not reach state coffers.

Of course, there are gamblers who want to play responsibly and pay their taxes. Most reputable online casino establishments find legality to be key to market success. Players who respect Indian tax regulations tend to look for such operators. Yet, there are online casinos in India that focus marketing messages around "full amount" withdrawals.

How Can Regulated Gambling Produce Fiscal Benefits?

A prime example is provided by Sweden where betting, lottery and horse racing held by private operators became legal as recently as January 1, 2019. The country's Parliament adopted brand new legislation acts (including a Gambling Tax Act) only the year before.

Previously, only the Swedish authorities were allowed to run gambling activities. However, mass digitalisation brought a practical end to such monopoly when offshore operators started offering online casino entertainment to all Swedes. Soon it became clear that the regulatory framework needed to be updated.

The nation's gambling legislation introduced a novel system requiring operators to obtain licenses. Unlicensed operators are subject to prosecution. Licensing fees are substantial.

Registered platforms pay a gambling tax of 18 percent on profits in addition to corporate income tax. Before the regulatory shift, none of these proceeds went towards the Scandinavian Kingdom's budget.

Calculations in a 2021 Deloitte India report place online gaming at $2.8 billion (₹ 20,500 crore). Previous studies, however, indicate that total gambling and betting is likely worth around $130 billion (₹ 950,000 crore). The potential of taxing similar amounts cannot be overlooked.

Indian Fiscal Situation Calls for New Sources of Revenue

The Union Budget for the financial year 2021-2022 is striving to cover a series of gaps caused by the global pandemic. Shrinking GDP, soaring public deficit and unemployment rates add to the banking sector's struggles with bad debt.

The Centre is planning to revive the economy by privatising $ 23 billion worth of state controlled assets in order to fund some of its ambitious spending targets. The healthcare sector has been suffering from chronic underfunding, getting only around 1.3 percent of GDP. Now it will see a 137 percent increase to a national total of $ 30 billion.

Overall spending on infrastructure will increase by 35 percent. The focus is on large-scale projects, with a new Development Finance Institution (DFI) to be set up with a starting capital of $ 2.7 billion to channel investments. Stressed banks will also be supported via a new facility which is supposed to acquire unpaid debt.

Budget deficit is projected at 6.8 percent, lower than last year's but still quite high. The current condition of Public finances makes a valid case for alternative income. Following Sweden's example, legalised gambling offers a logical solution to substantial additional expenditures.