Pay 28% or more for movie tickets: Will GST spell bad news for entertainment industry?

The goods and services tax will come into effect from July and many industries are analysing the impact of the new tax regime.

One such industry is the entertainment sector that was expecting to fall in the lowest bracket of the one tax one nation concept. However, now movie goers will have to shell out 28 percent on movie tickets besides the ticket price.

The tax burden doesn’t end here as many states are considering to levy local body taxes.

What are local body taxes?

Rahul Puri, MD of Mukta Arts, explains that local body taxes (LBT) are taxes which the state government can direct a city’s local authority to collect.

How will it impact the movie business?

States like Maharashtra, Gujarat, Madhya Pradesh and Rajasthan have indicated they could ask local bodies to charge a tax on cinemas.

As per news reports, Maharashtra has already taken step towards replacing state entertainment with the local body tax by introducing a bill to amend the entertainment tax law. And, other states are preparing to follow suit.

“It (LBT) would be a huge issue in certain states if levied as the GST rate is already so high,” said Puri.

What was the expectation from the single indirect tax system?

Ajay Bijli, the man who has been in the cinema business for 27 years and who is the Chairman and MD of PVR, says the industry expected GST to reduce the burden of numerous taxes it was dealing with- service, entertainment, VAT, excise and octroi-like taxes. But, things have changed as movie tickets will be taxed at 28 percent. The Film and Television Producers Guild of India proposed for a GST rate of 5 percent to the government for the film industry growth and to make it a lucrative business investment opportunity.

Along with Bijli, many others from the industry were hoping GST to take the movie business in India to another level.

“In the very near term itself, we would have come at par if not better than the best in the world, both in quality and quantity. It was an opportunity to scale up our domestic box office, which is at present a dismal size compared to those in the US, Chinese and even smaller markets. Through GST, we could have screens in every nook and corner of the country,” believes Bijli.

Amid the challenges, is GST a ray of hope?

The entertainment space is dealing with the menace of piracy which has affected the industry with an annual loss of around Rs 180 billion every year, accompanied by a loss of 60,000 jobs every year, as per a FICCI-KPMG report.

Single screen theatres are facing low occupancy rates. On an average 3-4 percent of single screen theatres have been closing every year.

Amid these challenges, the movie business in India saw the unified tax as a ray of hope.

The industry was expecting the introduction of GST to help mitigate the cascading impact of tax and help in better operating margins for exhibitors. The benefits would have led to decrease in ticket prices.

If in the lower bracket, what would have GST meant for the entertainment industry?

Currently, multiplex operators pay on an average 21-22 percent of entertainment tax (varies from state to state) on their gross box office collections and an average of 11-12 percent of value-added tax on sale of food and beverages.

A palatable GST rate would have bought parity and removed the volatility we have faced over the years, says Bijli. He added that world over, cinemas are hardly taxed higher than single-digit rates. This helps the cinema industry in these countries to plough back the money into high quality, and globally appealing movies.