Will legalizing betting help Cricket and Tax Revenue?

Will legalizing betting help Cricket and Tax Revenue?

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The cricket spot fixing scam in the Indian Premier League (IPL) has caught the attention of all and sundry in India. In a country where cricket is considered a religion, a “secular” religion wherein people from all communities have faith, the spot fixing scam has naturally overshadowed every other issue in the country, at least, for the time being. Many experts have advocated legalization of betting in cricket to solve the problem of spot fixing in cricket. Experts argue that if betting on horses is legal, then why not in cricket? It is also argued that if betting in cricket is legalized, the Government will benefit by huge tax revenue. For example, the noted journalist S.A. Aiyar writes in Swaminomicsthat if betting is legalized in cricket and elections, it will generate an estimated tax revenue of Rs. 40,000 crore every year presuming that the tax rate is 20%, and that, moreover, over and above this, there will be also be huge additional income tax paid by the bookmakers, all workers in the gambling industry, and by winners.
We have the tendency of making new laws under mob pressure. Many of such laws are half-baked laws aimed at easing the public pressure generated after some incident. Ultimately, some of such laws do more harm than good. Laws should be seriously debated and deliberated upon before their enactment, instead of enacting them hastily as a short-term quick-fix medicine to calm down the public sentiment or to divert the public attention from the real issues.
Legalization of betting in cricket should also be debated and deliberated upon seriously before jumping to any conclusions. All aspects need to be considered. Here are a few.
Some experts are confused about the real issues in the current spot fixing scam in cricket. There are mainly two aspects of this scam. The first one is betting and the second one is spot fixing (or match-fixing). These two aspects can exist independently of each other, though in many instances they co-exist and may also have the relationship of cause & effect. The problem of spot fixing is much more serious than betting and it needs to be attended to with a wider perspective. The Government has already indicated that it is considering enacting a law to penalize dishonest practices in sports. Merely legalizing betting in cricket will not solve the problem of spot fixing.
One should also be aware of the ill-effects of legalizing betting (or should I say, gambling?) in cricket. It is different from horse-race. It may be noted, firstly, that betting on horse-race is legal only subject to various limitations, and secondly, that it is confined only to certain limited sections of people. For example, in Mumbai (and, in other parts of Maharashtra), betting on horse-race will is permissible under the provisions of the Bombay Prevention of Gambling Act, 1887, subject to following conditions:
(a)    if it takes place on the day on which horse race is to run; and
(b)   if it takes place only within a permitted enclosure or place; and
(c)    if it takes place between an individual (present in person) on the one hand and the licensee (or his permitted sub-licensees); or between any number of individuals present in person in such manner and by such contrivance as may be permitted by licence.
It may be noted that the above-mentioned licences are governed strictly under the provisions of the Bombay Race-Courses Licensing Act, 1912. Thus, it is obvious that betting on horse-race is permitted only in these exceptional cases. It is not permitted at other than the licensed places and it is also not permitted between unauthorized persons. Now, how many race-courses do we have? Thus, betting on horse-race is confined to a few selected places only and it is not available to common man. In fact, most people in our country would not even have heard anything called race-course and betting on horse-race.
On the other hand, if you allow betting in cricket, it is likely to become widespread keeping in view its popularity and availability). If you’re going to control such legalized betting only to some selected places and/or persons, the problem of illegal betting will still continue which defies the very logic of legalizing betting in cricket. On the other hand, if you allow betting in cricket in a general manner (though under terms of licence), say through Internet, such betting will become quite widespread which is likely to create its own problems.
Human beings (and, especially, we the Indians, the believers in “luck”, “kismet” or “taqdir”) have tendencies to attempt the short-term methods of “luck” or “gamble” to become rich instead of following the long-term methods of hard-work. That’s why every now and then we notice a Ponzy scheme fraud coming to light in India, where people easily believe that money can be trebled in 3 months and thereby invest their money in such fraudulent schemes, only to lose the principal amount itself instead of getting a 200% or 300% return thereon. For example, in a recent case that I handled in the Supreme Court, I found that a company collected about Rs. 500 crores from more than 52000 persons in a short time through a Ponzi scheme promising that it would return 3 times the principal amount in 3 months. Ultimately, the said company defrauded them and was not able to return even the principal amount. The fact remains that such a large number of people could believe such tall claims and it clearly shows our tendency to try to become rich overnight, even if we have to put our hard-earned money at risk and ultimately lose even such scarce money.
For a rich person like a Vindoo Dara Singh or an M. Gurunath, betting may be a fun and perhaps also a source of a lot of ill-gotten money (courtesy, spot fixing or inside information). But, for a poor person, it will be another way of becoming poorer. We must understand that betting is a zero-sum game. One person’s gain is another person’s loss. The actual amount distributed by bookies to winning persons is always much less than the total amount collected from betting. In fact, even in a so-called skilled profession like share market, it is believed that 95% people indulging in speculative trading (which is more of gambling than skill) lose and it is only 5% people (mainly the big players) who gain.
Moreover, it is poor people (with limited resources) who lose more in gambling. It can ruin poor families who may already be finding it difficult to earn their livelihood and may be defaulting on repayments of loans with exorbitant interest rates. In fact, these are the kind of people who may want to try their luck in gambling without fully understanding its dynamics and consequences. There are cases when a poor person earning Rs. 100 a day might already be spending Rs. 30 on liquor, instead of spending on his family; now, he might have to spend another Rs. 30 on betting also. Likewise, the middle class people, who want to become rich overnight to buy luxurious goods, are also likely to indulge more in legalized betting and ruin their lives.
This is so because gambling becomes a habit very fast. You may win today, but you cannot carry that money home since you will bet with more stakes and will ultimately lose more. In epic Mahabharata, even Yudhisthira, who was known as “Dharamraj” or the “king of dharma” or the “righteous king”, succumbed to the temptation of gambling in a game of dice and lost all his kingdom and also put at stake the modesty of Draupadi who was married to him and his four brothers. He was forced into exile for 13 years, which included one year in anonymity. This happened to a King who was called the “king of dharma”. Can we expect poor people to control their temptations of gambling?
We must realize that what is good for a rich M. Gurunath or a Vindoo Dara Singh, may not be good for a poor Ramu or a poor Iqbal living in a slum in a city or in a small village. This aspect needs to be considered seriously before legalizing betting on cricket.
Should we encourage gambling? Just because many rich people indulge in gambling in an illegal manner, should we make it legal so that they can remove their feeling of guilt and openly indulge in gambling? Will it not encourage more gambling? What type of system we want? One based on rewards on the basis of one’s hard work and talent, or one based on rewards of gambling? I am not passing any value judgment. What I am merely saying is that these are some of the questions that need to be first considered from all angles.
Let me now discuss the so-called benefit of tax revenue that is likely to result due to legalized betting. Running a restaurant is legal? Isn’t it? Opening a retail store is legal. Isn’t it? So are many other legal business activities. How much tax we get from such legal activities? Is it not correct to say that in many businesses, the tax avoidance is up to 80% or 90%? No invoices. No excise duty. No sales tax (or VAT). No income tax. Add to this, the corruption of the tax officers. For every 1 activity of a tax-paid business, there may be sometimes 10 business activities of the same kind for which no taxes are paid. Mind you, all these are permitted and legal business activities.
So, what is the guarantee that once you legalize betting, all betting will become legal and taxes will be paid on all such betting? Will there be no illegal or unreported or unlicensed betting to avoid the taxes?
Let me give an example. Betting on horse-race is allowed in Mumbai subject to the conditions mentioned above. There are taxes to be paid on such legal betting. Do you know what actually happens in practice? For every one transaction of legal betting on horse-race, there may perhaps be one hundred transactions of illegal betting on horse-race in Mumbai. Why? To avoid tax. To avoid complicated process of licensing, compliances, and reporting under such licence. Due to corruption of the licensing and controlling authorities. And, the like.
Moreover, there is another angle to the so-called legalized horse-race betting. Even if someone bets through such legalized betting, it has been seen that the amount of bet is generally grossly under-reported for many transactions. For example, if someone bets Rs. 100, it will be shown as a Re. 1 bet. It will be understood that every bet recorded in records shall be multiplied by 100 at the time of initial bet and at the time of distribution of reward. Thus, while on record, such a bet is legal, it is grossly undervalued.
Therefore, while most of the betting transactions in horse-race will be through illegal route and not through the licensed legal route, even where some transactions are routed through the licensed betting channel there is gross undervaluation of the betting amount. There are organised crime syndicates everywhere. There is the involvement of the controlling authorities and other law-enforcement authorities. So, the actual tax revenue collected is much less than what should actually be due. Though I am not aware of the actual tax revenue collected through horse-races, my practical experience as a former police officer tells me that it should be only a miniscule percent of the real potential.
Thus, legalizing betting in horse-race has not stopped illegal betting and it has not produced tax revenues. What is the guarantee that legalizing betting in cricket will stop illegal betting (and prevent spot fixing in cricket) and yield significant tax revenue? At the most, we’ll have two parallel systems, that of legal betting and illegal betting, with the latter being many times more than the former. Of course, we’ll have a big tribe of legal gamblers in our populace.
Trading (or speculating) in Futures and Options in the stock market is also a sort of legalized betting to some extent, where one places his stakes believing that the market (or a particular scrip) will behave in a particular manner in the coming days or months, though of course, it also involves skill to some extent. The securities transaction tax is imposed on such transactions, though it is less than 1%. Yet, how much is the tax collected when such transactions are fully transparent and when the volumes are very heavy – running into tens of thousands of crores every day? It is insignificant.
Consider sales tax (or VAT or CST). Even if such tax is 1% or 2%, people do not report all transactions and there is a massive under-reporting of invoices to avoid taxes. Do you think people will report their betting transactions if a tax rate of 20% on legal betting on cricket is applied as S.A. Aiyar has suggested (here)? Will there not be a parallel system of illegal betting even after betting in cricket is legalized?
In fact, in some states, even state-sponsored lottery is not permitted. Reason? It has devastating effect on millions of people who can easily get used to it, which is nothing but gambling. Government can earn revenue. But, isn’t it a “welfare” state? Should the Government earn its revenue from methods that can ruin families and/or that can encourage gambling? Isn’t there a similar reason behind the Governments permitting sale of liquor only through a few licensed shops than to permit its free sale through the Kirana shops?
Should all these issues not be considered in detail from all possible angles?
Coming back to the original issue, the question remains intact as to whether the problem of spot fixing in cricket can be cured by legalizing betting? As mentioned above, illegal betting may still thrive even after betting in cricket is legalized. Dawood Ibrahim and his company will not apply to the Government for grant of a licence for being a bookie to run betting in cricket. So, will legalized betting will solve the problem of spot fixing? Will it drastically or significantly enhance tax revenues of the Government? Will it not encourage the culture of gambling in the masses? Will it not ruin many families?
As I mentioned earlier, I am not passing any value judgment. All I say is that these issues need to be considered seriously before the Government takes any decision to legalize betting in cricket. It should not happen that the cure causes more damage than the disease itself.
Aiyar has also suggested (here) that betting be legalized in elections also. I think I only need to quote from another eminent journalist M.J. Akbar, with whom I cannot agree more; he writes in The Sunday Guardian:
Indian bookies thrive over two seasons, cricket and elections. One can only hope that bookies will never be strong enough, even with Dawood Ibrahim’s help, to do unto our elections what they have done unto our cricket. The thought that fixing election results could begin from the fringe, in isolated Assembly constituencies, is too intriguing to be entirely dismissed. Shift, for instance, 15 seats from Narendra Modi’s tally in Gujarat to Congress, and Indian politics becomes a different drama.”
I don’t think we can allow gamblers to manipulate our democracy by legalizing betting in elections. We should not and cannot permit any betting in elections.

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