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GST effect: Additional local taxes to make entertainment expensive

LiveMint logoLiveMint 24-05-2017 Harveen Ahluwalia

New Delhi: Watching movies at multiplexes, or even TV at home is likely to get expensive as states prepare to empower local bodies (municipal corporations, municipalities, panchayats, local and district councils) to impose additional entertainment tax outside the ambit of the goods and services tax (GST). The TV services likely to be charged are cable and direct-to-home (DTH).

States such as Maharashtra, Madhya Pradesh, Gujarat and Rajasthan have already said they will levy an additional entertainment tax on cinema, and cable and DTH services, according to several media industry executives and tax experts. Last week, at the GST Council meeting in Srinagar, many state finance ministers talked about their plans to levy local taxes on movie tickets, the proceeds from which will go towards meeting the revenue needs of these bodies.

“Many states have said that local bodies will levy an additional entertainment tax outside of the GST regulatory framework. In media and entertainment sector, there will be no reduction in tax in any way. The rate in cinemas was 10% and now, it has gone up to 28% with GST. It will further go up when local bodies impose taxes. In fact, tax on cinemas will be higher than on alcohol and cigarettes,” said Utkarsh Sanghvi, tax partner at EY India.

The GST for movie tickets has been fixed at 28%, while a rate of 18% has been fixed for cable and DTH services by the finance ministry. Currently, cinemas attract an entertainment tax of 8-10% (on average). Cable and DTH services attract tax of between 10% and 30%, depending on the state.

ALSO READ: Multiplex association appeals to govt to reconsider entertainment tax under GST

According to the media industry executives, all the aforementioned states are planning to replace the state entertainment tax with the local body entertainment tax which they believe will be “a double whammy for the sector and a compliance nightmare.”

For instance, a bill amending the entertainment tax law has already been introduced in Maharashtra legislative assembly to replace state entertainment tax with the local body entertainment tax. Madhya Pradesh, Gujarat and Rajasthan are likely to follow suit.

“The 28% GST on movie tickets is not all the tax that will be levied. The GST rate subsumes central and state taxes on tickets but states are contemplating local body taxes on tickets over and above GST rate,” said a finance ministry official who did not want to be named.

Tax experts say that this additional local tax will defy the purpose of GST irrespective of what the current ticket prices are.“The whole idea of GST was to subsume service tax and entertainment tax and have a single tax. If local bodies impose additional taxes, the purpose of GST is defied,” said R.Muralidharan, senior director at Deloitte India.

Meanwhile, the Multiplex Association of India has made a representation to the government. The association emphasized that cinemas could end up paying not just a high 28% GST but possibly a 10% - 25% local body entertainment tax as well. “This dual taxation at prohibitive rates would not only lead to substantial increase in ticket prices for cinema goers, but may well sound the death knell for the film industry, which already is faring quite badly, due to the continuous onslaught of piracy,” Deepak Asher, president of the association said, in a statement, adding that a rate of 5% or 8% would be appropriate for the industry.

Sanghvi of EY agreed . “Industry will benefit if the central government levies a lower GST rate or the 28% and 18% tax rates include the local body taxes as well,” he said.

Lata Jha and Gireesh Chandra Prasad contributed to this story.

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