If other state lotteries were not heard of in recent times it was only because Kerala had ceased to be lucrative for gambling entrepreneurs.
Under the Goods and Services Tax (GST) regime, state-run lotteries were placed in the lower GST slab of 12 per cent. But state lotteries, when sold in other states in India, were imposed a GST of 28 per cent. Gambling kings, who were distributors of many other state lotteries in Kerala, virtually went out of business.
The GST council has now withdrawn the tax protection enjoyed by home lotteries. Lotteries run by the host state, too, will now attract the higher GST of 28 per cent, effectively restoring the competitive edge of other state lotteries. Gambling companies will fly in any time soon.
In fact, one had already attempted an entry. A company had recently applied for the permission to sell Nagaland lottery in Kerala. The GST department had rejected the application saying it did not satisfy the conditions of the Lotteries (Regulation) Act.
As per the Centre’s directions under Section 10 of the Lotteries (Regulation) Act, any state organising lotteries in another state should submit all information regarding the conduct of the lottery to the host state, and this includes information about printing, sales and distribution of lotteries, the type of draws and the manpower involved. No such mandatory information has been furnished by this firm, a top GST department official said.
Theoretically, it can be said a level playing field has been created. But evidence on hand shows distributors of other state lotteries are bound by no rules. They set their own.
Here are some reasons why their entry could be financially disastrous.
Bleeding the guest state
It is not just Kerala that will suffer. Official investigation has shown that distributors cheat their 'boss' states, too.
Sample a Comptroller and Auditor General (CAG) statistic that could give a hint of the shocking pilferage indulged in by distributors selling Mizoram lottery in Kerala and other states: The total sales proceeds from the sale of lotteries in Mizoram increased from Rs 2,972.19 crore in 2013-14 to Rs 6,571.70 crore in 2014-15, an increase of Rs 3,600 crore. But the revenue to Mizoram government increased only by Rs 2.48 crore (from Rs 9.30 crore to Rs 11.78 crore) in the same period.
Distributor-government nexus
The embezzlement of public funds to such an order of magnitude is impossible without the collusion of the states themselves.
The agreement many north-eastern states had entered into with their distributors for the sale of lottery tickets in other states is in itself a violation of Lottery (Regulations) Rules, 1998. Under the rules, the entire proceeds of the sale of lottery tickets, as received from the distributors, should be credited to the consolidated fund of the organising state.
This requirement was done away at the agreement stage itself. Take for instance the agreement with Mizoram government and the distributors. The distributors were required to deposit only a minimum guaranteed revenue (MGR) into the consolidated fund.
This meant that the revenue to the state was effectively capped and the profits of the distributor limitless. Result: During the period 2012-15, the revenue to Mizoram government by way of MGR and administrative expenses was Rs 25.45 crore when the total sale proceeds were Rs 11,834.22 crore.
Even this deal was flouted by the distributors. The distributors had to deposit the MGR on the seventh day of every succeeding month. But it had delayed depositing the MGR by even three years. What's more, the agreement signed by the Mizoram government did not have a penal provision either.
This showed the distributors were allowed to profit from even the pittance they had promised to pay the state.
Illusion of prize money
Lottery prizes looked almost fictitious. Under the Lottery Regulation Rules, it is the responsibility of the organising state to ensure that the prize money is credited to the bank accounts of prize winners.
However, in many cases, it was found that bulk of the prizes distributed was below Rs 10,000, and in a clear violation of rules, were paid by the distributors. The states had control over the distribution of only the prize money above Rs 10,000.
Let's take Mizoram as an illustrative case. A CAG report in 2017 has said that during the period 2012-15, the total prize pay-out for prizes above Rs 10,000 was Rs 23.77 crore, just 0.25 per cent of total prize pay-out of Rs 9,460.58 crore. In other words, 99.75 per cent of the prize pay-out was in cash and through the distributors.
The CAG also said it was also not clear whether prizes had been paid because the distributor had not maintained details of prize winners such as names, addresses, prize amounts for prizes up to Rs 10,000.
No limit for draws
The Regulation Act stipulates that no lottery should have more than one draw a week. But in the case of Mizoram, the distributors had a set of weekly lottery schemes that ran every day of the week. The scheme names were designed by suffixing or prefixing sub-names for each day of the week to the lottery group name.
Too many tickets to print means compromise on security features. Rules insist that lottery tickets should have security features like bar code, micro-lettering, and penetrating ink for numbering to protect the interests of the ticket holder.
Other state lotteries don't worry about such features.
Ghost houses
It was also found by various central agencies and also by the CAG that lottery directorates of various north-eastern states had no more value than an abandoned food godown.
Printed lottery tickets were sent not to these directorates but to the distributors directly. Even unsold tickets, as mandated in the rules, are returned to the directorates.
Other common violations are: printing of lottery tickets in non-approved presses; the conduct of the banned one, two and three digit lotteries; printing of more tickets than was authorised by other states; adoption of flawed procedures for the draw of lotteries; and uncertainty over the exact place where the draw is conducted.
