The government has ended the debate on GST on online gaming by peremptorily imposing a GST of 28%, dismissing the protestations of the industry which avers that if a group of 10 participants contribute Rs 50,000 each including a fee to the online organiser of 5%, in all fairness GSTof 28% ought to be only on Rs 2500 as the remaining Rs 47,500 per head is what is at stake by way of prize money for the winner. The government also has refused to distinguish between game of skills and game of pure chance or luck, and rightly so because the debate whether a game is that of skill or chance can go on till the cows return home. The only saving grace for the industry is the government has promised a review of GST of 28% after six months.
It is true that the vice industry is the favorite whipping boy of finance ministers across the globe and in India, including at the state level. A stifling excise duty of 100% or more by states on liquor is justified on two grounds — making boozing prohibitive without imposing prohibition and garnering resources for the fund-starved state governments given that liquor and narcotics are the twin sources of excise within the ambit of the state governments. Heavy excise duty on cigarettes and other tobacco products is similarly justified both on moral and fiscal grounds though people are weaned away more easily with education on health hazards of smoking and drinking rather than with moral sermonising. Be that as it may.
But then one is apt to wonder, why target only online gaming and casinos? Why not, for example, target the day traders whose tribe is about half million and growing? Online share trading platforms come with an ‘intraday’ option as opposed to the delivery option. The intraday or day-tradingoption doesn’t call for demat account, besides entailing lesser brokerage vis-à-vis buying for delivery which then supply the gravitas to day-dreaming ambitious youth, reasonably well-versed with using computers and the online trading platforms to get hooked to these patently gambling instincts.
The futures and options or F&O segment of our stock markets too have some of the trappings of casinos. Both enable one to leverage his investments. In futures, one can buy or sell for delivery at future dates typically one month, two month or three months by just paying the margin money as fixed and mandated by the stock exchange for each scrip. The marked-to-market (M-M) feature of futures involves day-to-daydemands for extra money or credit. Option trading caters more fully to one’s gambling instincts. To wit, if I am bullish on, say, RIL, I can buy a call option for, say, 1000 shares of RIL for, say, Rs 10 per share for purchase one month hence at Rs 1600. All that I have to pay the broker is Rs 10,000 whereas if I were to buy in the cash segment the same number of shares say at the prevailing rate of say Rs 1550, I will have pay upfront Rs 15,50,000. If after a month RIL trades at Rs 1700, I can either buy at Rs 1600 or square off the transaction by taking the difference of Rs 100 per share aggregating to Rs 1 lakh on 1000 shares. If the price plunges below Rs 1600 a month later, I can simply walk away taking the upfront option fee loss of Rs 10,000 in my stride.
The point is why transactions consummated through the bourses beget kindness and indulgence from the government. Short-term capital gains (earned by selling shares within 12 months of acquisition) are taxed at a flat rate of 15% even if it is earned by a tycoon otherwise at the maximum marginal rate bracket of 30% plus. Long-term capital gains beget greater indulgence — just a 10% tax on such gains in excess of Rs 1 lakh.
One need not readily agree with the conceptualisation of the stock market as creating fictitious capital as dubbed by Karl Marx, or even more uncharitably as a casino, but the truth is that day trading is indeed a wager though rationalised and lionised as a chartist’s delight. Otherwise, what explains a person buying a scrip at Rs 1000 at 10.30am and selling it post-haste at 3.30pm for Rs 1100 or 900? Remember a day tradingtransaction has to be square off before the end of the day lest it is compulsorily squared off by the exchange at the closing price. To be sure, those with access to algo trading do more than gaze at the crystal ball but the truth is day trading at the end of the day is a game of chance, period.
Why not tag day trading alongside online gaming and subject it to a 28% GST, as the service providers are the online brokers who keep on urging the credulous to invest in A or B with a torrent of messages ostensibly garnered through their access to algo trading information? And why not tax the income from day trading as windfall and tax it at 30% flat alongside lottery, horse races, card games and other games of chances? If a housewife wins the KBC (Kaun Banega Crorepati) jackpot, she has to cough up 30% tax, as winnings from television contests are bracketed with other windfalls, although she has to rack her brain as the quiz progresses. No such use of cerebral skills is involved in day trading.
S Murlidharan is a freelance columnist and writes on economics, business, legal, and taxation issues