In this third part of S. K. Sagar`s incisive series on mathematical ratios in Indian racing, the focus shifts to the most crucial metric — R4, the ratio of dividends returned to punters against total bets placed. With GST levied at 40% on the wagered amount, this ratio has plunged to alarming lows, threatening the sport`s survival. Sagar methodically dissects how flawed taxation undermines both turf clubs and the racing ecosystem.

2. Ratio ( R4) of the Amount Received Back as Dividends from Totalizer to the Amount Invested in the form of betting, by the Punters.

This is the most important ratio of them all in the sense that if this ratio is adequately taken care of, all the other ratios are automatically taken care of. Hence this needs to be understood seriously.

At most racing centers in India, this ratio in respect of Win, Place, and Second Horse Pools is as low as about 0.66

This can be easily worked out and confirmed if we note down the anticipated dividends shown on the screens at any stage

Yours Truly was at the BTC course last Sunday ( 12th October 2025 ) fr intervenue betting for The Pune Races ( Derby day). This date is after The date when the 40 % GST came into force.

At one stage, in a six horse field I noted the dividends ( in Rupees) at a specific stage, as given below:

23, 28, 33, 42, 120, 150

So, if R is the said ratio, then the Equation for Evaluating R is:

1000*R ( 1/23 + 1/28 + 1/33 + 1/42 + 1/120 + 1/150) = 100

The solution of the above equation gives R = 0.66

There was a time - THE PRE GST ERA - when the tote deduction on win, place,shp bets was just 12 % and R was 0.88. If that was the case today, the corresponding dividends ( In Rupees) for the above mentioned six horse field would have been:

30, 37, 44, 56, 160, 200

And if we consider other category bets such as Jackpot, Forecast ( Exacta in US), Quinella, Tanala (Trifecta in US), Exacta (Superfecta in US), Treble ( Pick three in US), etc the ratio is probably as low as 0. 50. Assuming 60 % of betting is in the first category and 40 % in the 2nd category, the weighted average value of the Ratio R4 is worked out as 0.6 x 0.66 + 0.4 x 0.50 = 0.596 say 0.60. This is incredibly low compared to the ratio adopted in the rest of the World which varies between 0.8 and 0.9.

This is the single most important factor, which is affecting the health of the club, and responsible for such a huge quantum of loss of revenue.

And the reason why the Turf Clubs in India cannot increase the ratio beyond 0.60 is simple .. There is a 40 % GST levied by the Government on the Total Amount wagered by the betting public.

So, the Calculation is pretty simple. If at the end of the days races, if the Total amount wagered is about Rs one Crore, Rs 40 lakhs goes to the Government and about Rs 60 Lakhs goes back to the betting Public and the betting public collectively lose Rs 40 lakhs, and there is nothing - just zero - left for the Turf Clubs. How can the Turf Clubs run their business when there is no revenue accrued from the betting proper, and they have to manage with just the Entrance Fees apart from the Stall Fees from the bookmakers.

In principle GST, even if it is 40 %, it should not be on the amount wagered, rather it should be on the percentage totalizer deduction, which if it can be brought down to about 15 % will mean 6 % will go to the Government as GST and 9 % will go to the Turf Club towards its expenses including Profits. It does not require solution of complex differential equations to show that if this is done, it is likely to increase the amount wagered by the Public by at least twenty times, and the amount that goes to the Government may increase by as much as 3 times.

Again, the calculation is simple. In one case, where the 40 % GST is on the total amount wagered, the anticipated collection is about Rs 100 lakhs per day, the Government gets just about 40 Lakhs, The racing public is unhappy having collectively lost 40 % of the amount put in by them, and the Turf Clubs get nothing at all. In the second case where the 40% GST is on Clubs commission, The anticipated collection expected 20 times more ie about Rs 20 Crores ( instead of Rs 1 Cr ), The Tote commission @ 15 % is Rs 3.0 Cr, the Government Gets Rs 1.2 Cr per day ( instead of a mere Rs 40 lakhs per day), The racing Public is very happy having got back 85% of the amount it invested ( instead of just 60%) and the Turf club earns Rs 1.8 Cr per day instead of Zero.

It is a No Brainer that if this is done, The Turf Clubs will be in a comfortable position to Increase the Stake Moneys by at least 2.5 times, if not more, and all the ratios R1,R2,R3, mentioned above will be adequately taken care of.

Why this is not done is very difficult to understand.

Ultimately it boils down to the Resourcefulness of the Turf Authorities in taking up this issue with the Government.

In this connection, I wish to provide the following `Information in the Field` on the subject, as is known to me:

On 2nd June 2021 The Hon`ble Karnataka High Court (HC) in Bangalore Turf Club Limited and ors. v. Union of India [WP No. 11168/2018 and WP No. 11167/2018 decided on June 02, 2021] held that Goods and Service Tax (GST) cannot be levied on the entire bet amount received in the totalisator as it would take away the principle that tax can only be levied on consideration received under the Central Goods and Service Tax Act, 2017 (“CGST Act”). The Court also declared Rule 31A(3) of the Central Goods and Service Tax Rules, 2017 (“CGST Rules”) and Karnataka Goods and Services Tax Rules, 2017 (KGST rules) as ultra virus of the CGST Act.

Then, On 12TH August 2021 : HC stays order Levying GST on commission & not on bet amount In Horse Races, which is surprising and not understood

SOME EXTRACTS FROM THE JUDGEMENT OF KARNATAKA HC:

``The Hon`ble Karnataka HC in WP No. 11168/2018 and WP No. 11167/2018 decided on June 02, 2021 held as under:

Opined that betting is neither in the course of business nor in furtherance of business of the Petitioner for the purposes of the CGST Act as the Petitioner hold the amount received in the totalisator for a brief period in its fiduciary capacity for which it receives consideration in form of commission and once the race is over the money is distributed to the winners of the stake. Thus, the entire money held by totalisator cannot be construed as consideration in terms of Section 2(31) of the CGST Act.

Observed that Rule 31A(3) of the CGST Rules/ KGST Rules completely wipes out the distinction between the bookmakers and a totalisator by making the Petitioner liable to pay tax on 100% of the bet value. It is the bookmakers who indulge in betting and receive consideration irrespective of the result. In contrast, the Petitioner provides totalisator service and receives commission for providing such service. Therefore, there is no supply of goods/bets by the Petitioner under the CGST Act.

Noted that, Rule 31A(3) of the CGST Rules/ KGST Rules make the Petitioner a ‘supplier` of bets but the Petitioner is not the supplier of bets and therefore, cannot be held liable to pay tax under the CGST Act. The service or supply that the Petitioner do is only of totalisator component. The Petitioner dose not supply bets to the punters.

Held that GST cannot be levied on the entire bet amount received in the as it would take away the principle that tax can only be levied on consideration received under the CGST Act. The Court compared it to stock broker or a travel agent; both of whom are liable to pay GST only on the income i.e., the commission that they earn and not on all the monies that pass through them.

Stated that, Rule 31A(3) of the CGST Rules/ KGST Rules does not conform to the provisions of the CGST Act and thus are ultra virusthe enabling CGST Act and liable to be stuck down.
Held that, the Petitioner is liable for payment of GST on the commission received for the services rendered through the totalisator and not on the total amount collected in the totalisator``

As seen in the above extract .. There appears to be no ambiguity in the case .. The case looks crystal clear that the CGST is applicable only on the commission and not on the total amount collected in the totalisator.

Then why the delay in its implementation?

Somehow, I am unable to understand this.

WHAT IS THE IMPLICATION IF NO ACTION IS TAKEN TO REVISE THE MATHEMATICAL RATIOS:

The implications are far reaching and could possibly lead to the death knell of horse racing in India.

An indication to what might happen can be gauged from the fact that a few years back – when 28 % GST was introduced - a certain stud farm owner in Aligarh left his horses to die at stud farm. And now, as the GST is increased from 28% to 40%, anybody can guess how many more stud farms owners will close shop.

This is a grave situation, an extreme case of cruelty. And it is the system that must be blamed for this. It should be borne in mind that unlike other living creatures, a thoroughbred racehorse is brought to the planet Earth by Human Beings. In the eyes of the thoroughbred racehorses, we the human beings are Gods to them, and it is our duty to look after them. Perhaps, I am getting philosophical here, but I believe we cannot ignore this aspect. We are bringing too many of these poor creatures to the planet, expecting them to earn their own livelihood under stiff competition, and then getting rid of them when they fail to do so. This is ridiculously unfair to them. If intelligence was provided to these creatures, they will not find God in the human beings.

I think this may not happen. Good sense may prevail ultimately. I remain optimistic. But we need to act fast.

(to be concluded)