The Effect of GST on Exhibition

It is said that the introduction of GST (Goods and Services Tax) will be a revolutionary moment for India. One taxation regime for all goods and services across the country will replace lots of other indirect taxes on how we do business. It will truly create one single market for the country where State taxation policy doesn't create artificial barriers for trade. I think everyone will agree that the principle upon which GST is founded is extremely good and we had great hope it would propel the Indian economy like no other taxation change before it

However it has been a difficult process to work through. State opposition as well as political bias aside, the scale of the task is huge and each category of goods and services had to be put into different slabs or buckets as the GST tax regime put differing goods into different tax brackets. The Exhibition industry braced itself for a windfall as for so long it has been beholden to Entertainment Tax that varies from 60% to 20% from State to State. Even though the Industry had campaigned for a lower tax rate to boost a growing business, the expectation was that it would fall into the 18% tax rate that was mooted as the blended taxation rate in India is about 27% which would see the Exhibition business prosper. This didn't happen. In an announcement that surprised the industry, the government has put film tickets in the same bracket as betting on horse racing and gambling, levying a 28% tax across the board. This was then revised as recently as this weekend where some relief was granted to ticket prices of Rs 100 and lower, which would be taxed at 18%. Clearly the industry is not at all happy about this decision from the government and it once again shows how little the government sees value in the Media and Entertainment industry as a whole.

Cinemas the world over are taxed at single digit rates. We are a growing industry here and have to bear the cost of 28% tax! How can we then plough back money into the industry to really raise the bar for Indian cinema? Look at China. Government incentives have helped raise the profile of that country to the second most important box office in the world. They have moved from 5,000 screens to 30,000 screens in about 10 years. That has given them strength and now Hollywood needs their money to help produce films. It gives them huge leverage.

India has all the potential to be the same. We have the talent and the history of storytelling. If we can move ahead with the paltry 2,500 multiplex screens that exist today and ramp that up, it will give India the much needed soft power that the country and the industry demands. We can also scale up films to finally make breakthroughs on a global level. The boost we would have got from a reduction in tax could have been the catalyst for all this. Now we have a prohibitive tax rate that will make all multiplex businesses and analyst scramble around to check numbers and maybe halt the story there. Price capping in some States is a reality and now with the advent of a lower tax rate on lower prices, further State impetus may now exist to cap prices. It will be a huge detrimental to multiplexes who are surviving in a harsh environment. There is piracy and the onslaught of SVOD platforms to worry about and couple that with poor quality content, which was a huge problem last year, and the industry is left to fight battles it cannot influence with such a high taxation burden.

The dual pricing mechanism for GST also makes little sense to me. Are we saying that people who go to a morning show should be taxed less than people going to an evening show? Is it more of a luxury to see a movie in the evening or in a theatre which has higher technical capabilities? Surely we don't want to get into this situation. The right call was to make all cinema viewing the same 18% rate as watching films in India is not at all like gambling your money away on horse racing or betting. It's an odd comparison which the industry does need to fight against.

'Tubelight' will still do well. People will still patronise the cinemas but the sad reality is that if the tax rate remains as is, India and the exhibition industry is missing out on a golden opportunity to do something remarkable.

- MD of Mukta Arts Ltd. on behalf of Mukta A2 Cinemas