As India prepares itself to welcome the ‘one tax, one nation’ concept, country’s entertainment industry is anticipating its impact on the movie business.
Even as India prepares to welcome the ‘one tax, one nation’ regime, its a mixed bag for the entertainment industry. Under the new indirect tax system, all cinema services will be taxed at 28 percent.
However, it must be noted that the single tax regime will pan out differently in different states. The regional film industry expects to to shell out more with GST imposed.
GST, touted as the biggest tax reform in India was expected to lower the tax burden for the industry which has seen tough times recently with some single-screen theatres even shutting down.
Fraught with poor box office collections, due to inconsistent performance of both Hindi and Tamil films last year, Bollywood producers and exhibitors were hoping for a 5 percent GST rate, the lowest tax slab for services, for the industry.
Explaining the impact of GST on the movie business, Gireesh Menon, Director- Media and Entertainment, KPMG said, “In the past, you had service tax levied on certain elements of your business and certain elements sales tax was getting levied and then there is entertainment tax that is charged separately. These were considered as separate cost elements without getting any off-setting happening at all.”
GST is very relevant on the film side but complications can arise for the entertainment tax regime which varies from state to state.
"Entertainment tax rates are high in states like Maharashtra, Delhi and Uttar Pradesh. Delhi and Maharashtra contribute 60 percent to the profit collections and the taxes are high in these sectors. Thus, these states could gain from GST," said Menon.
But, the scenario changes for states that have low entertainment tax. “There are few states where entertainment tax is zero which will result in lesser benefits to these sectors,” added Menon.
Here is the list of state-wise entertainment taxes:
Maharashtra - 45 percent (Nil for Marathi Films)
Kerala - 30 percent
Delhi - 20 percent
Gujarat - 20 percent (Nil for Gujarati Films)
Tamil Nadu - 15 percent (Nil for Tamil Films)
West Bengal - 30 percent (2 percent for Bengali Films)
Karnataka - 30 percent (Nil for Kannada Films)
Andhra Pradesh – 20 percent (15 percent for Telugu Films)
Uttar Pradesh - 30-40 percent
Menon believes GST may not have serious negative impact and will be neutral or even prove to be net benefit for the sector.
But a major concern, he pointed out, is local body tax which will not be considered under GST. Entertainment tax has two components and at the state level there is local body tax. This tax is at the lower end but is subject to change. He said, “if tomorrow Mumbai municipal decides to raise it to 40 percent then it will be a cause of concern,” said Menon.Decoding GST
Commenting on the announcement, PVR told CNBC-TV18 that at 28 percent there is hardly any headroom to look at prices and they were expecting the tax rate for cinema services at 18 percent.According to PVR, the first 90 days post GST roll-out will be chaotic and said it has come as a shock to the industry that government has classified cinema as luxury.