Online Gambling - A booming menace!

Caught this interesting article in the Economic Times:

The rapidly mushrooming number of illegal sports betting websites is
heightening concerns among authorities about global corruption, money laundering
and gambling addiction.

There are now an estimated 15,000 such sites on the World Wide Web,
including some 13,000 illegal ones, shuffling around $23.6 billion a year,
according to the authorities.

[---]

Declan Hill, a journalist and British expert on the problem, says the
amount of corruption in global sports has increased almost 100-fold in the past
five years thanks to Internet-based gambling.

"Ten years ago, national lotteries controlled 100 per cent of the sports
(betting) market," Hill said.

Quite a serious problem, huh? Especially considering the amount of money which is being circulated around but what is the solution to this? Why not follow suit and legalise the entire online gambling business similar to what the U.K. and the Caribbean have done? Atleast, countries would then stand to benefit from the revenues generated through online gambling (in terms of taxes). Along with the legalisation of gambling, make betting on sports, especially cricket, legal too! According to some reports on the Internet, the current IPL season has seen betting activities to the tune of Rs. 4,000 crore!

Legalise them and then tax them and subsequently pass on the tax benefits to the common people (and this time in equal amounts to either genders :-) ). Try as hard as they may, governments will never succeed in truly eradicating betting and gambling, so why not profit from this burgeoning industry? Atleast, legalisation provides the governments with a way to regulate and profit from the revneues generated by this industry - As they say, if you can't fight them, then join them! :)

Impact of STTs on the Financial Services Sector -- A must read!!

It is a telling blow to all brokerage houses as well as other investment firms which were carrying out trading and arbitrage activities on their prop. book. The largest such name which comes to mind among the listed space is Edelweiss, which gets a lion's share of its profits from trading and arbitrage.

The situation earlier was that if any brokerage house carried on transactions on its prop. book in addition to client business, it was required to maintain separate set of accounts showing assessable taxable profit generated from each activity. Thereafter, STT generated on prop. book was allowed to be set off against tax liability arising on taxable profits attributable to the prop. transactions. (STT generated on client transactions of course would be claimed by the clients in their income tax assessment, if they submit their profits to tax as business income as opposed to capital gains). Inter-se adjustment was not allowed i.e. STT on prop. book could not be used for paying tax on profits from client business. As a result, there was a possibility of having unconsumed STT, which could not be carried forward.

The new situation will be that STT will be allowed as a business expense, which will clearly increase the tax amount significantly. To make matters worse, it would now be an actual cash outflow and not a notional tax adjustment, which means that cash flow position of such brokerages will be adversely affected. The only silver lining, if any, that I can see is that separate set of accounts may no longer be insisted on for prop. and client business and in effect the STT on prop. business could be claimed as expense against some of the client business. (This too is not clear, as the A.O. could still insist that STT be set off against gross income on prop. book only and excess if any be forgone)

When I heard the FM's statement, it immediately struck me that if one reads between the lines, it was a major negative. Surprisingly, there were no immediate reactions on this issue on the various TV channels as perhaps the realisation had taken time to sink in.....

I believe that future projections in all spreadsheets for Edelweiss (or any other brokerage house with significant prop. business - maybe Prime) will go for a toss and based on my calculations the cut will be severe.

Example:

Earlier :
Income 10 lacs Tax @ 30%= 3 lacs less STT 2 lacs Net
tax = 1 lacs

Now :

Income 10 lacs STT 2 lacs Taxable amount 8 Lacs
Net tax @ 30% = 2.4 lacs

In the above example, net tax liablity has gone up by 140% (from Rs 1 lacs to Rs 2.4lacs) In percentage terms it seems to be too much. but when we have to project numbers of any brokerage business we need to understand that by how much volume & churn out we have earned Rs10 lacs. with lesser volume/ churn out income generated lesser would be the impact.
lets assume less amt for STT ( as income gererated with lesser volume, as we know STT is function of Volume)

CASE 1:

Income 10 lacs Tax @ 30%= 3 lacs less STT 1 Net tax = 2 lacs

Income 10 lacs STT 1 lacs Taxable amount 9 Lacs Net tax @ 30% = 2.7 lacs



Tax laibilty just increased by 35% (instead of 140% as seen in example)



CASE 2:

Income 10 lacs Tax @ 30%= 3 lacs less STT Rs0.50lacs Net tax = Rs2.5 lacs

Income 10 lacs STT Rs0.50lacs Taxable amount Rs9.5 Lacs Net tax @ 30% = 2.85 lacs



Tax laibilty just increased by 14% (instead of 140% & 35% seen in example)





so the catch is by how much voume/churn out we have generated that much income.



No doubt STT recalculation has negative impact but how severve it would be , is the question of churn out for genearting the income.

For ur reference STT rate are:

STT rate for F/O is just Rs 1700 per Rs 1cr volume ( Payable only by seller)

For cash intra day Rs 2500 per crore ( payable only by seller)

For cash delivery Rs 12500 per crore ( payable by both buyer & seller)

N.B.: This post is courtesy a generous friend, SS -- an MBA from KJ Somaiyya (Don't mind if I mis-spelled KJSOM).. All hate mails, negative and snide comments should be directed at him; all praises to be directed to VARUN!! Ha ha, just kidding SS!! Thanks for the info mate!!

Unitech results out!!

Unitech Q3 net up 39.2% at Rs 525.8 cr

Unitech has announced its third quarter numbers. It has posted consolidated Q3 net profit of Rs 525.8 crore as against Rs 377.8 crore, a growth of 39.2%

Net sales increased by 18.7% at Rs 1142.1 crore versus Rs 962.3 crore. OPM stood at 64.3% versus 64.6%. Tax declined to Rs 131 crore from Rs 209 crore.

According to CNBC-TV18 estimates, it was expected to post net sales of Rs 1,179.4 crore and net profit of Rs 448 crore.