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Good,So-So Or Tough?

With the GST expected to be rolled out next year, we spoke to industry experts about its effects on our film industries across states

The  decks have finally been cleared for what has been billed as the most important tax reform in Independent India – the unification of the multiple Central and State level taxes governing manufacturing,  trade and commerce under a nation-wide Goods & Services Tax, GST.

A substantial process still remains before the proposed law becomes operational. Namely: Lok Sabha’s approval of the new amendments introduced in the Rajya Sabha; Ratification by at least 16 state Assemblies before receiving the President’s assent; Setting up of a GST Council that shall decide on crucial factors like the actual rate of GST and the administrative structure and processes; Passage of the Central GST legislation in Parliament as also State GST Bills in all state Assemblies; and establishing the requisite IT and infrastructural backend at the Centre and in each State to actually handle the millions of taxable transactions that take place daily across the nation.

That said, the biggest obstacle holding up GST was the Central Government’s lack of numbers in the Rajya Sabha and with that hurdle crossed, it is a matter of time that this new tax regime becomes a fact of commercial life. Indeed, the Central Government has earmarked April 1, 2017 for the roll-out of GST.

While many financial experts and industry bodies have clamoured for the imposition of GST to subsume the multitude of Central- and State-level levies that Indian businesses currently grapple, the Indian film industry has been even more keen than most given that it is one of the most severly treated sectors by the taxmen.

However, the film fraternity’s celebrations at the meeting of their long-standing demand has been muted somewhat by the provision in the draft legistation that allows local bodies to impose Entertainment Tax.

This week we asked the industry insiders and experts about what impact the roll-out of GST will have on the Indian film industry? Over to them:

Uday Pimprikar

Tax Partner, E&Y

MultiplexesAs on date, film exhibition is subjected to punitive entertainment taxes which are imposed at a retail level and are not fungible against any taxes charged on the procurements made by multiplexes such as service tax on rentals, VAT on goods procured etc. A unified GST chargeable through the supply chain should significantly mitigate the cascading impact of tax and thereby reduce cost.  However, entertainment taxes imposed by local bodies may be considered negative if the same are imposed at punitive levels and are not recoverable from the general public.

DTH & Cable services: DTH and cable services are subjected to service tax and also an incremental entertainment tax.  While service tax and state level entertainment tax shall be subsumed in the GST, the effective entertainment tax incidence is expected to reduce.  However, the overall impact on the tax and revenue side will depend on the quantum of entertainment tax imposed by local bodies.  Under the GST regime, the tax cost on procurements for DTH and cable service providers should reduce on account of larger availability of credits.

Film producers & studios: As on date, bulk of the expenditure incurred by film producers and studios is liable to service tax as also VAT.  Given that, theatrical revenue is exempted from most of the output taxes, large part of the taxes charged on the procurements are not available to be set off against output tax liability and therefore is a cost.  The cascading taxes generally amount to almost 7-10 per cent of the overall procurement cost.  Imposing GST through the supply chain should allow the producers and studios to set off these taxes, thereby reducing costs materially.

Frank D’Souza

Partner and Leader, Entertainment and Media, PwC India

Salutary!  This in one word that describes the overall potential impact of GST for players in the Entertainment & Media space.  Of course there are certain elements which still need clarification, but on a holistic basis, GST will have an healthy impact on the tax structure as far as this industry is concerned.

One of the issues which the industry has been struggling in the recent past has been the assertion of tax, both under the Service Tax regime and under the VAT regime on certain transactions undertaken by the industry.  There has been a debate whether transactions that essentially involve the transfer or the right to use intangible rights is in a nature of a service or should be seen to be a transaction in ‘goods’.  The respective tax authorities have been asserting such levy.  The difference in the provisions under the federal law (ie: Service Tax) and the state laws (ie: VAT in individual states) has only fueled this confusion. With the introduction of GST this litigation, on a go forward basis, should be put to rest.

Separately, let’s take the instance of the exemption of service tax on theatrical income, however state or local entertainment tax does get levied; this also means that the input costs that are incurred in film production cannot be completely offset against the income which is earned from monetising the film.  With the introduction of GST there should be a seamless credit of such taxes against all taxes levied on income arising from any kind of monetisation of the film (except potential entertainment tax which may be levied at a municipal level, rather than at a state level).  This is another example of how the tax structure would be simplified for this industry.

Presently however, potentially there are issues of how the place of supply rules will impact the levy and collection of GST.  This may lead to, in the short run, certain level of litigation especially between states in terms of taxing rights.  However, over a period of time and with the experience of administration and through processes of clarifications, this should get resolved.

So summarising in brief, like in many other industries, GST regime does go a long way into simplifying the levy and administration of multiple taxes.  Admittedly in the immediate period after its introduction, one should expect some level of ‘price discovery’ being undertaken by the players, as they ease into getting a fuller and better understanding of how the regime actually operates.

Hiren Gada

Director, Shemaroo Entertainment

It is a positive development for the entire Media & Entertainment Industry and especially for the film industry which is currently reeling under the pressure of multiples taxes. With the entertainment tax getting subsumed under a uniform tax rate, there will be more share of the revenue left for the entire ecosystem including distributors, exhibitors, producers, and audiences. If ticket prices go down, there could be more consumer footfalls in movie theatres.

GST will also bring in a major change in the DTH space. With rationalised taxes, all players in the value chain including DTH operators, broadcasters and consumers stand to gain much. It could either result in more revenue being left in the hands of DTH operators and broadcasters or the consumers could stand to gain with the price of services going down.

Currently the set off for multiple taxes is complicated which could surely get addressed with the introduction of GST. Also GST could lead to lesser compliance costs due to simplified processes.

Kamal Gianchandani

CEO, PVR Pictures

Passing of GST in both houses is a landmark event, we reckon this event to be a game changer for the film business. Currently the entertainment tax rates are quite high and are punitive in nature (i.e. no set off is available), under GST regime the GST on all inputs (expenses) will be available for setoff. This will rationalise the cost structure of exhibitors and at the same time help producers in enhancing revenues from theatrical exploitation. The multiplicity of taxes and varied interpretations by tax departments has also led to various litigations, with GST we expect the tax regime to get simplified and unambiguous, resulting in less litigation and more peace of mind.

Amit Sharma

Managing Director, Miraj Entertainment

The introduction of GST means that multiplex operators in India no longer have to face burden of multiple taxes, levies and charges. Multiplexes in different states used to be levied with different taxes. Presently, the entertainment industry is one of  the highest tax paying industry with 27 per cent-28 per cent tax to the exchequer. With the introduction of GST, the  industry will now have to pay single tax which will be anywhere between 18 per cent of which 50 per cent benefit will go to distributor and rest exhibitor. Hence, the overall rate of tax on industry will reduce significantly. It will give an overall boost to the entire industry.

Saurabh Saxena

Chief Operating Officer, Carnival Cinemas

We see this move by the Government as a positive move as it is encouraging both for business and society. It will help the exhibition sector to a great degree and will bring the uniformity of entertainment tax throughout the country. If implemented properly, it can bring boom in the industry.

Raj Malik

Senior Vice-President, Production And Distribution, Krian Pictures

The GST bill has finally been passed and is being hailed as a historic development in India. The implementation of this bill is expected to regularise the complex tax structures which exist today, and will standardise the business modalities to a great extent. However, inspite of numerous representations made by prominent industry personalities and entities to streamline the entertainment tax structure for the film industry, the government is yet to give this aspect its due attention. In the current form the entertainment tax across the country is a state government controlled component, with the percentage varying across various regions. While there is a ticket rate ceiling in some states, with the absence of this in the others, the average consumer bears the brunt of an inflated gross ticket value with the various categories of taxes also imbedded within it. Ideally the GST should immediately benefit the film industry as well, and there should be an immediate dialogue initiated by film industry big-wigs with the government authorities to identify the implementation mechanism of this bill in the context of cinema tickets, shooting permissions, technical and creative services etc. The endeavour should be to lower the burden on the consumer, in terms of cinema ticket pricing, and also lower the risks involved in producing films, by controlling costs, thereby improving yield margins. In the current climate, there seems to be strong possibility of GST being the first step towards positively impacting the entertainment industry. Fingers crossed.

Girish Johar

Head – Global Revenue, Essel Vision

With the GST Bill being passed by the Parliament this certainly brings cheer to all us industry folks…but I am really keen to see when the same will actually be rolled out. Yes we will get standard ETAX rates now across the country but what about those which are already ETAX free. Also double taxation will be wiped out but I hear that the GST for entertainment may have a provision that local government bodies or lower municipal bodies may have the power to charge extra taxes or whatsoever. So personally for me it’s a wait and watch situation let all the guidelines come out and then maybe we can celebrate. So till then let our champagne bottles be in the refrigerator waiting to be popped soon.

Murli Chhatwani

Managing Director, Muviwale Entertainment

According to me the GST will affect the film industry in a positive manner and also have adverse effect to some extent too. I presume the Entertainment Tax (ET) applicable on theatrical revenue will be replaced by GST and thus many states will benefit as the average ET is around 30 per cent  which will now be replaced by GST which will be around 15 per cent-18 per cent thus a benefit of approximately 12 per cent-15 per cent  on an average. This change will benefit the audience as it will reduce the ticket pricing by 10 per cent-12 per cent and also increase the revenue of distributors and exhibitors thus increasing the revenues of producers as well.

In case of non-theatrical revenue where Service Tax and VAT is applicable, the adverse effect will show as Service Tax is 15 per cent and VAT is 5 per cent. Here if both are applied in one bill and are replaced with GST then its advantageous but where only one of the two are applicable then the tax may increase. Also the production will have to face 18 per cent GST instead of 15 per cent ST as of now, which is high.

Overall as major revenues of the film industry come from theatrical collections we will stand to gain more then we lose, thus for us it’s a win-win situation for sure, rest we will have wait and watch till the final implications come into force as to what will be the exact amount of gains in case there are any changes in the rates.

Rahul Puri

MD, Mukta Arts

GST will have an extremely positive impact on the entertainment industry and in particular the Indian film industry. As GST replaces a whole host of separate taxation and by effect  reduces the total tax burden on the industry we can look forward to higher profit as the industry will keep more of its revenue. Particularly multiplex business will see an extremely positive impact as high rates of entertainment tax will be replaced by a one rate GST. Efficiency will also increase as will transparency, as the industry will now have to deal with only one tax and not a bouquet of many others. The largest advantage for the country as a whole is the creation of a single common market, which will ultimately benefit all the businesses.

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