Taxed into the pit lane: Why India's Formula 1 dream ran out of track

India Today

4 days ago

More than a decade ago, India tasted the thrill of Formula 1 (F1) racing. For three unforgettable years, the Buddh International Circuit in Greater Noida came alive with the roar of engines, the blur of cars hurtling down the straights, and the electricity of 90,000 fans on their feet.Sebastian Vettel, Lewis Hamilton, and Michael Schumacher—some of the biggest names in motorsport—raced on Indian soil, waving to Indian crowds. It wasn't just a sporting event. It was a statement. A belief that India could take its place on the global F1 calendar and stay there.advertisementAnd then, it was over. No farewell, no countdown, no final lap. Formula 1 vanished from the Indian grid, leaving behind silence and a track that never got to fulfil its promise.
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Why did Formula 1 vanish from India? The answer lies not in track design or lack of fanfare, but in a tangled web of taxes, red tape, and regulatory confusion.F1 IS A COSTLY AFFAIROrganising a Formula 1 race isn't cheap. Building an F1-grade racing circuit can cost anywhere between $200 million to over $1 billion. But that's just the beginning. Each race weekend brings additional expenses like pit lane facilities, hospitality centres, media rooms, security, road upgrades and marketing.Altogether, staging a single F1 weekend can cost approximately Rs 500 crore to Rs 1,250 crore. Such costs are often shared by race organisers, sponsors and national or state governments.In India's case, while the infrastructure was put in place and the race was held successfully for three years, government support was limited.
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This, experts believe, became a major roadblock for the event's long-term future.LABELLED AS 'ENTERTAINMENT'One of the biggest issues that led to the early exit of F1 from India was taxation.According to tax expert Dr Suresh Surana, 'Formula 1 was classified as 'entertainment' and not 'sport' for tax purposes in India because Indian tax authorities and courts determined that the event did not fit within the specific statutory exemptions or favourable tax treatments available to 'sporting events'.'This meant the race organisers had to pay entertainment tax on ticket sales and business income tax, making it more expensive to host the event. In 2011, the Supreme Court ordered Jaypee Sports International, the company responsible for the circuit, to deposit the entertainment tax amount in a separate account before the race could take place.
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'The Supreme Court did not allow the exemption to be operative pending the dispute's final resolution, meaning the Grand Prix was treated as an entertainment event for taxation. This meant that earnings from the event did not qualify for sport-related tax exemptions or benefits,' said Dr Surana.The entertainment tax law in Uttar Pradesh at the time did not list car racing as a sport eligible for any kind of exemption. Instead, it included traditional cultural or performing arts. This interpretation of F1 as a leisure event instead of a sport added to the financial strain on organisers.LACK OF SUPPORTBecause F1 was not officially treated as a sport, it missed out on government support like infrastructure grants, subsidies, or administrative help that other international events such as the Commonwealth Games received.'The classification of the Formula One Grand Prix as an 'entertainment event' rather than a 'sporting event' meant that it was subjected to state-level entertainment taxes. This denied the organisers access to tax exemptions and concessions typically available to sports events of international repute,' said Dr Surana.
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advertisementHe added that the high capital investment, lack of tax relief, and limited number of races made it hard for the Indian Grand Prix to remain viable over time. With no recognition, tax exemptions, or long-term policy support, the event could not survive.WOULD IT BE DIFFERENT UNDER GST?With India now under a new Goods and Services Tax (GST) regime, there may be a better chance for F1 to make a comeback. The earlier system of state-level entertainment taxes has been removed, replaced by a single nationwide tax.'If Formula One were to be reintroduced in India, the current tax environment particularly after the implementation of GST may offer a more favourable framework,' Dr Surana said. 'The GST system provides a unified tax structure with moderate rates and the benefit of input tax credit, which may help reduce the overall tax burden.'
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advertisementHe also mentioned that compliance under GST is simpler and more transparent, which could improve the financial and operational setup for hosting an international event like F1. However, Dr Surana cautioned that the exact impact of GST would still need deeper analysis based on how the event is structured.While tax problems were a big reason behind F1's exit, there were other challenges too. Lack of long-term vision, unclear policy support, and poor coordination between different departments and stakeholders made it difficult for India to remain on the F1 calendar.India may have fixed the tax roadblock with GST, but only clear policy can steer Formula 1 back on track in India.- EndsMust Watch