Sports in India: the indirect tax structure

When we talk about sports law, the attention of those in the practice of law is focused on contracts of star sportspersons, liability of those who endorse products, broadcasting rights in events, control of sports federations, and other issues pertaining to high-level competitive sport. In this essay I turn the spotlight, for a moment, away from these and towards a pervasive but neglected dimension of sports – play, as it happens away from organised sports.

 Tax as a policy tool

Taxes are not merely a means of raising money for the government: they are also a tool through which social and economic policies are indicated and implemented. An example is “sin tax” levied at a high rate on items or activities that the government would like to discourage. (Paradoxically, the high revenue thus raised may make an actual ban difficult.) So, when a government policy on something is not clearly articulated, it is instructive to study the tax structure.

Structure of indirect tax on sports: penalising the entrepreneur?

The sports policy of the Indian government is not clearly articulated. However, when we look at the indirect tax structure for sports, we see that it

differentiates the sports activity along two axes:

           Entrepreneurial / official; and

           For-profit / charitable.

The focus is on preferential treatment for the officially run or recognised sports activities and for non-profit organisations. On the other hand, sports activities by others are heavily taxed. In this connection the taxes and exemptions in GST and import duties are discussed below.

GST on sports

The GST exemptions are given under items 53, 68, and 80 of notification 12/2017-CT(Rate) and are as follows:

S. no. 53: Heading 9985: Services by way of sponsorship of sporting events organised -

(a) by a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, State, zone or Country;

(b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat;

(c) by the Central Civil Services Cultural and Sports Board;

(d) as part of national games, by the Indian Olympic Association; or

(e) under the Panchayat Yuva Kreeda Aur Khel Abhiyaan Scheme.

S. no. 68: Heading 9992 or Heading 9996: Services provided to a recognised sports body by-

(a) an individual as a player, referee, umpire, coach or team manager for participation in a sporting event organised by a recognized sports body;

(b) another recognised sports body.

S. no. 80

Heading 9996

Services by way of training or coaching in recreational activities relating to-

(a) arts or culture, or

(b) sports by charitable entities registered under section 12AA of the Income-tax Act.

To sum up the exemptions extracted above, GST is exempted on

• Sponsorship of sports events organised by certain specified recognised bodies; (this means that these bodies will not have to pay GST on reverse charge basis as applicable to sponsorship)
• Coaching, being umpire or referee, managing a team, or playing in an event organised by a recognised sports body;
• All services provided by a recognised sports body to another recognised sports body;
• Coaching or training for recreational sports, by a charitable entity registered under section 12AA of the Income-Tax Act;

The persons and entities to whom these exemptions are not applicable have to pay GST on reverse charge for sponsorships received; they have to pay GST on amounts earned for coaching, refereeing or umpiring, for managing a team, or for playing in an event. They have to pay GST on any services provided to anybody, even to a recognised sports body. They have to pay GST on coaching or training provided for recreational sports. The GST for all these is 18 per cent of the amount charged.

Import duty and exemptions for sports goods

Sports goods are fairly comprehensively covered under heading 9506 of the HSN-based customs classification, which covers -

“Articles and equipment for general physical exercise, gymnastics, athletics, other sports (including table- tennis) or out-door games, not specified or included elsewhere in this chapter; swimming pools and paddling pools”.

The rate of customs duty for these goods is 20 per cent basic customs duty plus 18 per cent customs IGST, which is charged on a value that includes the basic customs duty. In other words, if the value of an item is 100, the basic customs duty is 20; the value for calculating customs IGST Is 120. Thus, the customs IGST will be Rs 21.60, rounded off to Rs 22. The customs duties on import of sports goods and related items and equipment will therefore come to over 40 per cent. This is the “tariff rate”, which means the rate before applying any exemption that may be notified.

Some exemptions from customs duties are available for import of sports goods. These are discussed below.

(i) Customs exemption for recognised bodies

Customs duty exemptions are also available for certain imports for sports under notification 146/1994-Customs. Under the first item of the notification, there is a broad-based exemption for most sports-related goods, if imported by the agencies named, as follows.

The following goods:-

(a)Sports goods, sports equipments, sports requisites, including synthetic playing surfaces, fitness equipments, sports medicine,sports apparel;

 (b) Spares, accessories and consumables relating to goods covered by (a) above.

(a) The said goods are imported into India by,-

 1. Sports Authority of India or Sports Authority of concerned State, for use in a national or international championship or competition, to be held in India or abroad or for the purposes of training, or

 2. A National Sports Federation for its own use or for the use of its State/District Affiliate Associations, in a national or international championship or competition, to be held in India or abroad or for the purposes of training , under a certificate issued by the Sports Authority of India, or

 3. the Services Sports Control Board in the Ministry of Defence for their own use or for use in a national or international championship or competition, to be held in India or abroad or for the purposes of training, under a certificate issued by the Services Sports Control Board.]

(b) the importer, at the time of clearance of the goods, produces a certificate to the Assistant Commissioner of Customs or Deputy Commissioner of Customs from an officer not below the rank of a Director in the Sports Authority of India or Secretary, in the Services Sports Control Board for its own imports or Director of Sports Authority of concerned State indicating -

 (i) the name and address of the importer and the description, quantity and value of the said goods; and

 (ii) that the said goods are required for the purpose specified in condition (a) above.

Thus, sports goods and requisites are exempted from customs duties if imported by the Sports Authority of India, sports federations at the national level or their state / district-level affiliates, or the Services Sports Control Board under the Ministry of Defence. The goods must be meant for use in training purposes or competitions at national or international level, and this has to be certified by an officer in the organisation, of the rank specified.

There is also an exemption for artificial surfaces and synthetic tracks if imported under a specific central scheme for laying these.

(ii) Customs exemptions for eminent sports persons

In addition to the exemptions for imports by recognised sports bodies, the notification 146/1994-Customs also exempts basic customs duty on imports of specified goods by any “sports person of outstanding eminence” for purposes of training. The notification 86/2017-Customs exempts IGST on the same imports.

Certificate from Ministry required

Conditions of both exemptions include a certificate from the Department of Youth Affairs and Sports that the importer is a sports person of outstanding eminence and that the items are “essential for training purposes of the importer”. The items allowed are specified for various sports: for example, shuttlecocks, racquets and racquet strings for badminton; balls and cues for billiards / snooker; and so on.

For shooters, certificate from Rifle Association required

In the case of shooters, the abovesaid exemption notifications carry a proviso that the importer is to produce a certificate from the National Rifle Assocation that he is a “renowned shooter”, and the term is defined. This serves instead of the certificate from the Department of Youth Affairs and Sports.

Observations of High Court on requirement of certificate from government

In a case decided by the Madras High Court, the imports made by two shooters who had a record of participation in national and international competitions were denied the exemption under notification 146/1994-Customs at Chennai port for want of a certificate from the Department of Youth Affairs and Sports. The importers approached the High Court for relief. In its judgment on the writ petition filed by the importers, the Madras High Court observed that the proviso in the case of shooters was inserted to forestall such a requirement:

“If the interpretation given by the 4th respondent has to be accepted, no eminent sportsman in this particular field would ever be able to import any of the ammunition of arms for the training purpose and he will be languishing in the corridors of Department of Youth Affairs for years together for obtaining appropriate certification.” [Nathaniel Karuna Hudson v G.O.I., MF, DR, 2018 (361) ELT 87 (Mad. HC)

Thus, for shooters, a certificate from the National Rifle Association suffices, and the term “renowned shooter”, which is the language that the said Association has to use to certify the importer, has been defined in the notification.

We may note in passing that “languishing in the corridors of the Department of Youth Affairs” may be the predicament of several sports persons of outstanding eminence under this notification, as the relief from the said Department’s certificate has been extended only to ‘renowned shooters’ by the proviso. As for the others, it appears to be the discretion of the mandarins in the Department of Youth Affairs and Sports to decide whether or not the applicant /supplicant is a sports person of “outstanding eminence” or not quite so. The term “sports person of outstanding eminence” remains undefined.

Eminent sports person can import only for personal use

Further, the exemption is only for imports for the personal use of the eminent sports person. If he sets up a training class for aspiring players, customs duty will be payable on the sports goods used. The duty is about 40 per cent. Yes, we have of course heard of several outstanding sports persons setting up training establishments for aspiring sports persons in their field. But this is achieved with much help from the state government, typically, and from sympathetic business persons. Customs duty concessions or GST exemptions are not available for these.

Summary of the exemptions

It is seen from the above that customs exemptions for goods imported for training of aspirants and for use in competitive events are available only to the Sports Authority of India and recognised sports federations. For eminent sports persons, the exemption is allowed for goods imported for their personal training only. For others, like neighbourhood sporting clubs, there is no exemption.

In GST, the exemption is for recognised sporting bodies and non-profit organisations. There is no exemption from GST for the neighbourhood clubs or coaches or the larger privately run sporting organisations. All these have to pay GST on sponsorship received, and on coaching fees, amounts charged for umpiring, refereeing, managing a team, and any other services provided to anybody.

Role of neighbourhood sports organisations in nurturing talent

Recreational sports

Sports is played recreationally in the neighbourhood, among friends, and also competitively at district, state, national and international levels. Needless to say, the element of competition is present even in children’s games, and tough competitive sport remains recreational in a profound sense when it remains pure sports. (I am excluding the extraneous factors like the big money in endorsements that rides on high-level sports nowadays.)

Playing is good in itself

The process of playing, by which a person “recreates” himself or herself, is profoundly human and is a good in itself. This is why efforts are made to wean young people away from video games and social media for some time each day to go out and play a game. Playing is considered a character-building activity. A well-considered sports policy would aim to foster sports to enable play, regardless of who provides the aegis under which it happens.

The National Youth Policy, 2014, which is the most recent statement of intent from the government in this regard, does note that “A sports culture needs to be promoted among youth”, and that, “A seamless channel for talent identification, coaching, participation in competitions and incentive provision needs to be developed to promote excellence in sports.” However, the government tends to retain control of the process rather than take enabling action. This inhibits growth. Efflorescence of talent would be facilitated if the government, instead, supported the informal channels through which the funnel for talent operates.

The funnel of talent

When we talk of sports, we refer to recreational playing among friends and neighbours, more systematic learning in sports coaching, as well as to competitions like tournaments and championships, which may be local at one end of the spectrum and high-profile international events at the apex level. These levels are not mutually exclusive: one leads to another. The child who began playing in the neighbourhood playgrounds or coaching centres may enter into private training and competitive sports and may eventually become a star. Indeed this is the most common progression that produces star players. The recognised sports bodies generally figure only towards the midway or end of this process.

The local level training is usually entrepreneurial, that is, it is an enterprise run by an individual or firm, for a fee. Typically the training sessions are carried out in spaces provided by the residents welfare associations; sometimes, a nearby field or stadium space may be available on hire. The entrepreneur who owns the training business is motivated to look out for talented youngsters and train them for entry into competitive sports organised by the recognised sports bodies: the numbers sent up in this way are a measure of his quality and success and garner good publicity for him. Local playing is thus a funnel for talent to reach the organised structures. A well-known example is Ramakant Achrekar’s cricket club, which famously mentored Sachin Tendulkar.

Indirect tax on sports at the local level

We have seen earlier in this essay that the structure of indirect tax on sports is such that it favours official / non-profit bodies, while it taxes the entrepreneur heavily. There can be no quarrel with income-tax as a direct tax on the entrepreneur’s profits. However, the dichotomy of profit /non-profit has no logic or applicability in the area of indirect taxation, because the burden of this tax falls on the players. 

GST impinges on sports at the local level in the form of an 18% levy on sports coaching and training and all other sports-related services. Earlier, in the service tax regime that prevailed uptil June 2017, coaching for recreational sports was exempted from tax. This changed with the advent of GST. Now the exemption for such coaching for recreational sports is mystifyingly restricted to only charitable entities that are exempted from income-tax under section 12AA of the Income-Tax Act. Firstly, it is a rare charitable entity that enters the arena of sports coaching. Secondly, as discussed above, the player is the person who bears the burden of indirect taxation, so the nature of the coaching organisation is not a rational criterion for exemption.

A competent coaching business needs to invest in skilled coaches and to work on excellence in its methods of coaching. A low turnover does not enable this; usually, the coaching organisation will cross the exemption threshold for GST and has to add 18% to its pricing. As the main input for a coaching business is the services of individual coaches, there is hardly any input tax credit to be set off, and therefore the rationale for fixing 18% rather than 12% is not clear: it seems to be an oversight rather than a well-considered decision.

As for the equipment used, we have seen above that imports of equipment are taxed at a rate that comes to about 40% of the supplier’s price. To this the wholesale and retail margins and taxes are added, making sports goods much more expensive for the “non-official” trainer, that is, who is not one of the official sports bodies.

We must remember that an eminent sports person is also a non-official trainer if (s)he sets up an academy. We have all read about the struggles of Pullela Gopichand to set up his badminton academy in Hyderabad. No tax exemptions are available for such a person, though his contributions in sports training are immense. Inevitably, part of the cost has to be borne by the trainees. There are non-official initiatives that seek to alleviate the problem, like the GoSports foundation, which sources funds from corporates for upcoming players. These are ad hoc ‘band-aid’ solutions.

The revenue from GST and customs duties on sports may not be significant at a macro level and the government can reap considerable public good by foregoing it. A blanket exemption for indirect taxes on sports will be a rational approach and would give welcome relief to many struggling sporting aspirants.