Cinema industry welcomes lowering GST rates to 5% on food served in movie theatres

Union Finance Minister Nirmala Sitharaman briefs the media after the 50th GST Council meeting, in New Delhi (PTI Photo)

Multiplex operators on Tuesday welcomed the GST Council's decision to lower the tax rates on the food and beverages sold in cinema halls, saying it will help in the revival of the theatre business post-Covid and avoid litigations.

The Goods and Services Tax (GST) Council, headed by the Union finance minister and comprising of representatives of all states and UTs, on Tuesday decided to lower the service tax levied on food and beverages consumed in cinema halls to 5 percent from 18 percent.

F&B (food & beverages) are an important source of earnings for the cinema exhibition industry, specially for the multiplexes that earn up to 35 percent of their revenues from this segment.

PVR INOX Ltd CFO Nitin Sood said: "The entire cinema industry welcomes the clarification issued by the GST Council today that food and beverages sold at the cinemas will get covered under the definition of 'restaurant service' and would be liable to GST @5 per cent (without availment of input tax credit)." "The above clarification will help resolve the industry-wide issue for the sector which includes more than 9,000 cinemas across the country in avoiding disputes/ litigation from a GST standpoint, giving tax certainty and help in revival of the theatre business post-pandemic," he added.

The film exhibition industry was having a tough time after the pandemic as they were closed in 2020 and were opened with some restrictions. Finally from March 2022, they were allowed to be 100 percent open at full capacity and content pipelines started flowing.

Karan Taurani, SVP of Elara Capital, said: "From the financial perspective, it will have zero impact but from a litigation perspective, there is a relief. Now there is clarity for the sector, which has emerged now that for any food products you have, GST would remain at 5 percent.

"Various states were asking the GST Council to imply a higher GST and there was no clarity and cinema operators were in litigation with state governments," he said, adding, "Now this notification brings everyone on the same track and now all food items whether its samosa or popcorn or else, will be charged at 5 percent." Now in the cinema business, F&B variety is increasing immensely because of the premium food offerings, he said.

Nuvama Group Executive Director, Institutional Equities, Abneesh Roy said some of the leading exhibitors like PVR were already booking at 5 per cent GST on F&B.

"PVR was charging at 5 percent taking a view that food and beverage sold in cinemas is similar to restaurant service where it is 5 percent," he said.

India has over 9,000 cinema screens before the pandemic. However, some of them closed after the pandemic due to a financial crunch as the industry could not operate for a long period. It was opened with several restrictions, which also continued for a long time.