Be Careful What You Wish For…

Almost a month back, on May 19, 2017, the Goods and Services Tax (GST) Council announced a 4-tier structure of GST rates – 5, 12, 18 and 28 per cent – covering the vast majority of products and services traded in India.

The imminent roll-out of GST on July 1, 2017, has been long in the making and the film industry, as also this publication, have been ardent supporters of what has been touted as the most path-breaking economic reform in independent India. Our advocacy of GST was based on assumed reliefs in three of the most critical financial problems faced by the film trade – the severity of taxes, the multiplicity of taxes and our frequent inability to claim tax credits due to anomalies in the tax structure.

It was with dismay, therefore, that we learnt of film ticket sales being placed in the highest tax bracket of 28 per cent in the May 19 announcement. And that’s just one of many concerns, as we will see later in this note. Yet we refrained from any comment. The sole reason for that was the faint glimmer of hope offered by the prospect of the GST Council revising the rate, following representations by our industry. The relevant ministry and bureaucrats, we learnt from impeccable sources, are not too fond of being spoken to through the media and hence we maintained radio silence to avoid queering the pitch.

Credit where it is due, various film bodies and groups did make impassioned representations and appeals to various powers at various levels. And thanks to their efforts, when the GST Council announced its revised list of rates on June 11, partial relief was offered by placing sub-Rs 100 tickets in the 18-per cent GST slab. 

However, that minor rollback does not by any means compensate for what lies in store for the film industry in the GST era, and now that it is virtually a fait accompli, there is nothing to be gained by holding back on a candid critique.

One, even with some tickets being taxed at the ‘lower’ rate of 18 per cent, the Indian film industry, on the whole, is going to shell out more than it did under the current, State Government-led Entertainment Tax regime. That is not hyperbole, just check out the table below that looks at the effective tax rate over the last three years, taking into account the major language-based industries in Indian cinema:

Gross Collection: 2014 -2016


Ergo, even if every ticket had been taxed at 18 per cent, we would still have paid more tax than we actually did in each of the three years. Given that the bulk of the revenue generating tickets are in the 28-per cent category, we are staring at a further Rs 800-900 crore hole in our collective pocket at current levels of the Indian box office.    

Incidentally, by placing us in the highest tax bracket, the powers-that-be have served yet another reminder of what exactly they think of filmmaking as a priority sector. The next time we hear mealy-mouthed platitudes about our interests being close to the government’s heart, we would do well to show them examples of other nations that walk the talk, as seen in Table 2.



So no luck with Item No. 1 on our wish list: lower taxes under GST. How did Item No. 2 – elimination of multiplicity of taxes – fare? After all, one of the key selling points for implementing GST was the ‘One Nation, One Tax’ slogan.

Again, the film industry has been singled-out for ‘special’ treatment on this front by allowing local bodies to impose further taxes on ticket sales, in addition to GST. This is no notional threat with states like Maharashtra, Gujarat, Madhya Pradesh and Rajasthan having already announced plans to replicate the current State Entertainment Tax regime at the municipal level. So instead of dealing with the tax regimes in 29 states and 7 Union Territories as we do at present, we will have to grapple with literally hundreds of municipal corporations across the country. Cutting down of tax multiplicity, indeed!

Which brings us to Item No. 3 on our wish list – rationalisation of tax credits and set-offs. Unsurprisingly, no luck here either! With GST on input costs for producers (talent fees, hiring of post-production studios etc) pegged at 18 per cent, and a lower levy of 12 per cent on their revenues (transfer of theatrical and non-theatrical rights), we will be faced with tax credit accumulation thanks to this inverted duty structure, without any provision for refund.

In short, in all the three problem areas that we had hoped that GST would deliver us from, the remedy has turned out to be deadlier than the malady.

At this point, we should typically launch into a rant on the step-motherly treatment always received by an industry that is a major employer, an integral part of India’s arts and culture, an ambassador for the nation’s soft power blab, blah, blah. But, honestly, what’s the point?

Maybe it’s time to just lie back and enjoy the inevitable.

Nitin Tej Ahuja
Collection Chart
As on 16th September, 2017
Poster Boys110.31Cr10.31Cr
The Rally11.54Lk1.54Lk
Mr. Kabaadi11.61Lk1.61Lk

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