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Multiplex association appeals to govt to reconsider entertainment tax under GST

LiveMint logoLiveMint 23-05-2017 Lata Jha

New Delhi: The Multiplex Association of India has made a representation to the government, including the GST Council, to reconsider the tax rate for the film industry fixed at 28% last week. The association believes a more benevolent rate of around 5% is appropriate for the industry that produces close to 2,000 films each year in multiple Indian languages.

The one major reason for dissatisfaction with the rate is the effect it would have on the prices of movie tickets. India, currently, follows state-specified rates of entertainment tax — while states like Delhi and Maharashtra work on 40% and 45%, respectively, others like Punjab have zero per cent tax rate.

“The 28% rate doesn’t move the needle at all because the blended entertainment tax across the country is much lower,” said Ajay Bijli, chief executive officer and managing director, PVR Ltd. “Pan-India, we were paying lesser taxes so we’ll have to be very careful about ticket prices. In places like Chennai, ticket prices are capped but the tax rate is 28% so I can’t pass the extra burden to those consumers. But we’ll have to keep the ship afloat somewhere. That means my inflationary costs are going to keep increasing. We’ll also have to carefully calculate what is to be done with components like food and beverage where the tax has also gone up.”

There are several other reasons to support a lower tax rate, the association said.

“India has one of the largest film industries in the world. Despite this, screen penetration in the country is amongst the lowest – less than 10,000 screens for a population of 125 crore, as compared to China’s 35,000 plus screens for a population of 135 crore,” said association president Deepak Asher. “Though cinema is the primary, if not only, form of entertainment for the masses, film viewership remains amongst the lowest in the world, with less than 4% of the population having watched the largest mainstream Hindi movie of 2016, Dangal.”

The fact that cinema, a clean and wholesome means of family entertainment, has been accorded the same tax rate as luxury activities like racing, gambling and casinos is even more disturbing, members of the association say.

In addition, many states have decided to empower local bodies such as municipal corporations, municipalities, panchayats, local and district councils, etc. to levy an additional entertainment tax outside of the GST regulatory framework. Basically, this would mean that cinemas could end up paying, not just a prohibitive 28% GST, but possibly a 10%-25% local body entertainment tax as well. This dual taxation would not only lead to substantial increase in ticket prices, already a source of concern for many movie-goers, but also contribute to the grave threat long posed by piracy and other formats of content delivery to the movie business.

“Over the last 27 years, taxes have gone up and come down, ticket prices have been controlled and decontrolled and yet the exhibition sector has been chugging along and trying to open 200-300 screens every year,” Bijli said. “The overall tax regime has not been conducive to grow the industry at the same pace as US or China and box office collections are pretty dismal compared to how movies are doing all over the world. If the tax had come down to 12 or even 18%, this was a great opportunity to improve revenues.”

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