Mr. Rahul Puri shares his views on the impact of GST on cinema exhibition along with budget expectations

Like it or not, there can be little doubt that the introduction of GST in the last budget was one of the largest shifts in Indian economics in our countries still fledgling history. The whole system of indirect taxation was done away with and replaced with one single taxation system aimed at transparency and simplicity. A year later and with another budget looming, perhaps it`s important to now see whether this revolutionary idea has indeed succeeded in it desired goals and what impact this has had on our industry and also look at what this new budget has in store for the Film industry.

Firstly, the industry was disappointed with the GST tax slab we were put into. We had expected a greatly reduced rate from the Entertainment Tax regime and therefore to be lumped into the 28% slab with gambling and horse racing was extremely off putting. The Government later added a second tax slab with the addition of the 18% slab for ticket prices of less than Rs 100 and whereas this brought some relief, it did not completely do away with the feeling that Films deserved better. Single screens across the country have been shutting down over the last few years, even in states where the entertainment tax was as lower than 18%. Regional films that were exempt from taxes, will have to pay taxes under GST which may be detrimental to their growth.

In addition there was no clarity on the additional levying of Local Body taxation. Many States and Municipal Corporations talked about adding to the tax burden of theatres by levying a further tax on top of GST. This was even rolled out in Chennai, with much resistance and protests. It was then cut back and now has been added again. Watching movies in Tamil Nadu has since then turned out to be an expensive affair. A ticket for a Tamil film will include GST in addition to the Local Body entertainment tax which may vary between 28% to 38%. And if you are a fan of other language films in the state, you may end up paying as high as 48% of the ticket cost in taxes. An analysis of 20 states and UTs by the Multiplex Association of India shows that a 28% GST on tickets will have a negative impact in 12 states. Clearly the Exhibition industry sees any further taxation as self-defeating for the whole GST regime and it already believes that the GST slab is too high, hence, Films and the sector as a whole will see a lot of investment dry up. Ideally a GST rate of 5-8% would be appropriate for the industry.

The input credit system also needs a lot of clarity. It in theory allows you to take advantage of the amount of tax you are paying and claim some back, which theoretically cuts your overall tax rate down and this relief would be greatly advantageous. However this input credit system is still untested and needs a lot of education before it can properly be relied on to really deliver a lower blended tax rate. We will know better about its operation in the coming months and as GST is both a Central and State levy, it would mean operating on two fronts.

However there are benefits of course. As I mentioned the blended tax rate (without any addition LBT`s) would come down from the previous ET regime and in a time of failing films and lower occupancy, this is an important step. The single window taxation is of course more transparent and simpler to account and deal with and we certainly have not had any issues so far with the payment and process of taxation receipts. Further simplification and education would bring greater benefits and the system as a whole greatly improves on the myriad of State levies under the last regime.

So what can we look forward to in the next Budget, just a few days away? Well to build on something I have spoken about already in this article, a clear sign from the Government that it sees the Entertainment business as a growth sector would be to reduce the GST slab from 28%. In India even today, about 60-70% of a movies revenue comes from theatrical releases. Amusement Parks recently saw their slab reduced from 28% and if you follow that same logic, then theatres should not be kept out of this. A reduced GST slab would be a huge boost. This though might not be in the Budget purview and the GST Council would have to make this change, but a signal would be a good first move.

Further clarity that no further levy of LBT`s will be forthcoming would also be a positive step. The point and purpose of the introduction of this sweeping change would be for `One Tax`. If there are more over and above, that basic premise would be left false. The Budget will hopefully send a signal to State governments that this step is backward for the industry and the economy. The government should also come out and honour the previous regime`s commitment on Tax exemption for investment in certain infrastructure areas. Monies were committed by the industry toward upgradation of theatres and technology in some States. If the government rolls this back, a lot of that investment would be in jeopardy. Therefore a sign that says it`s a commitment that they will stand by.

Lastly I would personally like to see them move positively on retail infrastructure development in the country. There has been a definitive slowdown in this sector and it has hampered the theatre growth. I believe that this budget will be an infrastructure focused one and if the government can get some of this focus on the retail sector, the Film business will indirectly see a benefit from that. There is little doubt that the Film sector is never really a large area for the budget to focus on. This makes sense as we are still a small industry relatively but a few small shifts and signals sent would make a huge difference to an emerging industry with massive potential and a huge public bearing. I hope the Government and the budget will take this into account.

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