Cinema Owners Fear Additional Tax Over and Above GST In Few States

States like Maharashtra and Rajasthan are set to levy entertainment tax over and above the 28 percent GST rate.

Come 1 July, when the government plans to roll out the Goods and Services Tax (GST) regime, your entertainment costs could shoot up.

The GST Council has put movie tickets in the highest tax bracket of 28 percent. But this will not be the final rate. Some states like Maharashtra, Gujarat and Rajasthan have authorised their local municipal corporations to levy entertainment tax over and above the GST rate.

The Maharashtra government has introduced a bill to amend the existing state entertainment tax Act to empower local bodies (municipal corporations) to levy entertainment tax equivalent to the existing GST rate

Utkarsh Sanghvi, Tax Partner, Media and Entertainment, EY India

This means that in a city like Mumbai, the municipal corporation can levy up to 45 percent tax over and above the GST rate of 28 percent, which adds up to 73 percent, he explained.

The average current tax incidence on movie tickets across India is 20 percent, Nitin Sood, chief financial officer of multiplex chain PVR Ltd., told BloombergQuint. The tax incidence varies from state to state.

It will be a double-whammy if local bodies also say that we want to collect tax on top of GST.

Nitin Sood, Chief Financial Officer, PVR

PVR is still assessing the impact of the final GST rate on movie-goers, and the industry will make a presentation to the government to seek a review, he said.

Watching a movie in India is not a luxury, and the government has put us on a par with casinos and gambling.

Nitin Sood, Chief Financial Officer, PVR

If municipal bodies remove the additional levy, movie-goers in Maharashtra and Delhi stand to gain from the 28 percent GST rate as the effective existing tax rate in these states is around 38-40 percent. However, tax incidence will go up in Punjab, Andhra Pradesh, Telangana, Gujarat and Chhattisgarh, Sood said.

“I think the government has looked at the existing tax rates without considering the fact that some states like Uttar Pradesh, which has a tax rate of 60 percent, give exemptions. So, the effective tax rate comes down to around 20 percent from 60 percent,” he said.

Eating at Cinemas May Cost More

The average effective rate on food and beverages is around 10-11 percent pan-India in movie theatres, according to Sood. However, it varies in every state.

“Based on product classification, the proposed GST rate on food and beverages comes out to 20 percent,” he said, adding that taxes will go up significantly.

But Watching IPL Matches May Get Cheaper

Tickets for sports events like the Indian Premier League matches and international cricket matches played in the country are currently taxed at an average rate of 20-25 percent pan-India, Mitesh Shah, vice-president (finance), BookMyShow.com, told BloombergQuint.

However, an additional service tax of 15 percent is charged on tickets priced over Rs 500, he said. International tournaments are exempt from the tax.

At gross level, GST will be at 28 percent, which will bring down overall tax levy. However, there are exemptions for sports events like international cricket matches, but IPL matches do not get these exemptions.

Mitesh Shah, Vice-President (Finance), BookMyShow.com

For international matches, the entertainment tax would go up slightly, he said. But service providers will get input tax credit for capital expenses, which isn’t available at present, making GST overall profitable for organisers, he said.

“Impact on people who come to watch such events will be largely neutral as there are other factors beyond taxation as far as pricing is concerned, like popularity of the event and the venue’s seating capacity,” he said.

On the impact of additional tax levied by local bodies on event organisers, Shah said, “while a lot of details are awaited, and this is largely an enabling provision and doesn't necessarily mean that local bodies will actually levy entertainment tax, this will be a cause of concern if local bodies also charge an additional tax over and above GST, and may have financial and procedural impact on event organisers.”

Regional Cinema May Hit A Speed Bump

Currently, regional movie industry gets exemption in respective states. Under GST, the industry will get impacted in a big way, Sood said.

“The industry (regional film industry) was thriving on the back of incentives – tax holidays they were enjoying on these films, and the average lower tax rate. With the tax rate going up significantly, it will be very difficult to pass it on to customers.”

India has about 9,000 screens, of which around 4,000 are in the southern states of Tamil Nadu, Kerala, Andhra Pradesh, Karnataka and Telangana, where most movies screened are in regional languages.

(This story was originally published on BloombergQuint)