GST ON THE ENTERTAINMENT INDUSTRY: IMPACT ANALYSIS

INTRODUCTION

There are two sorts of taxes imposed by the Indian government to get revenue- tax, and tax. tax refers to those taxes that are imposed on the individuals, companies, firms etc. whose burden can’t be transferred to the other person like tax. Another tax is a tax that is imposed on manufacturing and consumption of products and services like VAT, central excise duty, central sales tax etc. Both the taxes form a main part of revenue for the govt. Around 49% of revenue from the tax is thanks to indirect taxes. But the most disadvantage of indirect taxes is that the cascading effect of tax on goods and services. for instance, the Central government charges the central excise duty at the factory gate for manufacturing the products and therefore the government also imposes several other taxes on the consumption of such product. As a result, the tax has got to be paid on the tax already paid. To avoid this and to unify India into one common market, economic reforms within the sort of GST happened on 1st July 2017.

Impact of GST on the show business is positive also as negative counting on the states. the most reason behind this is often the various rates of service tax in several states starting from 0 to 110%. the speed of GST is eighteen to twenty-eight. Hence the states where the entertainment tax and vat were lesser than the 28% rate has negatively impacted whereas the states where the speed was above 30%, has positively affected through GST. Also, the entertainment service providers can claim ITC under GST. Thus, we will say that GST has positively impacted the show business.

 

WHAT WAS THE PRE-GST SCENARIO?

The rate of Entertainment TAX before the introduction of GST varied from state to state, starting from 15% to 110% depending upon the services, location, type, and other benefits. Multiple VAT + service tax was included within the entertainment-related services. The VAT and repair tax were charged at 14.5% and 15% respectively. the speed variance was stabilized after the implementation of GST and now provides a consistent market nationwide, which prevents arbitrage.

The key challenges from a tax perspective faced by the industry were effective rate, implications for cross-border transactions, managing tax risks, cash-blockage due to high withholding rate and multiple indirect taxes. Many input taxes paid in many transactions were considered tax cost hence not available as credit. Even dual taxes were levied on many operations as a result of the federal structure of tax structure.

Under the GST law, media and entertainment services industry is split into 18% and 28% rate slabs respectively. The 18% GST Rate Slab includes TV and DTH services, theatre, circus, and classic dance events. The 28% GST Rate Slab is for both firms in cinema halls like movie tickets, casinos, sports event, funfair, movie festivals, racing, also as events.

Cinema has long been synonymous with the M&E sector in India. there's an extended value chain within the industry, and tax may be a transaction tax that impacts the industry at every stage. With the arrival of GST, things are expected to become relatively simpler for the show business because it would be subject to just one tax and permissible local body taxes. The GST legislation classifies access to cinema as a luxury and puts it under the very best rate of 28%. Given the socio-economic developments around the world, the cinema might not really be a luxury, a minimum of in metro cities.

One of the main changes has been the subsuming of Entertainment Tax under GST. Earlier, before GST, the speed of Entertainment Tax for the movie industry varied from state to state, starting from 15% to 110%. The introduction of GST has stabilized the speed variance and provides a consistent market across the state. A GST of 18% is levied on movie tickets up to 100 INR, and 28% on movie tickets costing quite 100 INR. The uniform rate across the state prevents arbitrage. Further, the costs of DTH and cable services decreased after the implementation of GST. However, sporting events like IPL attract a 28% GST levy, which makes them costly.

 

BUYING FOOD AT SUCH PLACES

Most of those entertainment places (movie halls, amusement parks etc.) usually give out contracts to private players to provide food.

The service tax earlier (pre-GST) was 15%, and therefore the show business enjoyed an abatement of 60% on service tax, i.e., only 40% of the 15% service tax had to be paid.

The Applicant is charging GST on the outward supply of products & Services as under:

i. Sale of Movie tickets – @28% (on tickets exceeding Rs.100/-) or @18% (on tickets below Rs.100/-);

ii. Renting of outlets – @18%

iii. Common Area Maintenance Charges – @18%

iv. Sale of Food & Drinks – @5% (Without claiming ITC on food items and beverages purchased)

Multiplexes were charged 27% tax on the sale of tickets and levy on food and beverage revenue. GST after introduction increased the corporate margin by 4-5%. Film producers pay large amounts of cash as service tax for processes like satellite rights, theatrical rights, etc. Under GST all taxes come under an equivalent category.

 

IMPACT OF GST ON THE ENTERTAINMENT INDUSTRY

Entertainment tax subsumed under GST and fungibility of input tax credits: Before GST regime, the tickets of films want to attract Entertainment Tax supported the State laws. No set-off was provided for Entertainment Tax against Service Tax or VAT paid by the exhibitors on procurements then the levies were cumulative and therefore the ultimate customer want to bear the burden of taxes. With the introduction of GST, the entertainment tax levied by the government is subsumed, which can reduce the ultimate cost of movie tickets to consumers in states where Entertainment tax was above the GST rate.

Power provided to Municipality to Tax on entertainment and amusement: Under GST regime, authority is given to local bodies to levy and collect taxes on entertainment and amusement. This appears to be a backdoor entry of entertainment tax and if levied by the local bodies, would increase the value to consumers. as an example, Entertainment tax is levied in Tamil Nadu at the speed of 8% on Tamil Films and 20% on other films which ends up during a significant increase in taxes on movie tickets. Also, the levy of Entertainment tax results in the cascading effect of taxes since Entertainment tax amount would be included within the base value for levy of GST.

The movie industry stands to profit significantly with the introduction of GST. the general reduction of the cascading effect of taxes should have a positive effect on the value of production/distribution and exhibition of films. However, concerns remain on specific areas like increased income issues on account of levy of GST on the whole value chain and a big increase in compliances (like registration, return filing and tax payment).

Additionally, one must wait to ascertain, the extent of the facility exercised by local bodies/municipality to levy Entertainment tax to analyse the precise impact of GST on the industry, On the opposite hand, amusement parks which is one of the main sources of entertainment are on the receiving end of the new tax thanks to increasing within the rate of tax.

 

IMPACT ON ENTERTAINMENT INDUSTRY OWNERS

As the end consumers, even the entertainment industry will see a varied impact of GST implementation. Movie theatres and amusement parks may even see either a positive or a negative impact counting on the state they're in.

Business owners within the show business are paying GST on entertainment services. The amusement parks and movie theatres also are liable under State GST. this might be positive or negative depending upon the states that they're doing business in.

According to an analysis, conducted by the Multiplex Association of India, the impact of GST is negative in 12 States where the GST rate is 28%, Positive in 7 States and Neutral in 1 State.

 

IMPACT ON END CONSUMERS

GST has given an overall profit to the entertainment sector. The tax on the movie ticket was 30% and there was 20.5% of the VAT alongside the service on the foods which an individual buys from the theatre. But, after GST, a tax imposed on the ticket was 28% and tax on the foods within the cinemas was changed at 18%. But here we use different results concerning the impact of GST on the enter attainment sector. Reasons for various consequences are:

• Low tax on entertainment service in some states

• No tax on entertainment services in some states

When GST was imposed in these states, they suffer an increase within the tax on the entertainment sector. However, it had been low for those where the tax on entertainment services was high. But, if we compare, GST was quite low as compared to the legal system i.e., VAT and service Tax, which was prevailing before GST. State also has the facility to incorporate or charge Local Body Tax (LBT) additionally to the tax which was discussed above under GST. Local bodies even have the facility to impose an extra change, under GST, on the entertainment services in their respective area.

 

ADDITIONAL TAX PAID BY MUNICIPLAITIES

While the entertainment industry feels that these rates are very high, it's even more concerned that the GST Council will allow individual states to levy a further local body tax (LBT). this is able to make movies the sole products and services with dual taxation.

Levying an LBT would be at the discretion of individual states, and LBT tax rates could vary across the country.

According to several media industry executives and tax experts, some states, including Maharashtra, Madhya Pradesh, Gujarat, and Rajasthan have already said they're going to levy this LBT on cinema, cable, and DTH services. Other states, including Kerala, have decided against the thought.

 If local taxes become applicable, then the operating margins and profits, as calculated above, are going to be affected.

 

AVAILABALITY OF INPUT TAX CREDIT

The key challenges from a tax perspective faced by the industry were effective rate, implications for cross-border transactions, managing tax risks, cash-blockage due to high withholding rate and multiple indirect taxes. Many input taxes paid in many transactions were considered tax cost hence not available as credit. Even dual taxes were levied on many operations as a result of the federal structure of tax structure.

- Production houses aren't ready to claim the input decrease on the value incurred at outdoor shooting locations where it doesn't have a GST registration. as an example, renting of immovable properties (shooting locations)

- ITC in respect of F&B, outdoor catering, etc. is specifically restricted under GST which ends up in significant cost for production houses

- another important issue is that within the case of a movie producer or a television content producer, the GST rate for films or television content is 12%. the main portion of input during a film or a TV serial is services given by artists, technicians, and other persons and various rentals paid which magnetize 18% GST. So major inputs are received with 18% GST credit but the output is charged at a 12% GST rate. just in case a movie doesn't fair well or couldn't be exploited to the extent of a breakeven level, the ITC of GST paid will remain unutilized and should need to be written off. Similarly, within the case of TV serials, which can't be sold at a remunerative price, ITC may remain unutilized.

 

Bottom Line

The entertainment industry has both positive and negative impact on a state-to-state basis. For those states having high entertainment tax, GST are going to be beneficial because it will reduce the costs for the top consumers. However, GST will have a negative impact on those states which have already got a coffee entertainment tax. The impact of GST on the show business are often both positive and negative, counting on the state. Owners of movie halls, parks etc. stand to realize under GST because of the supply of an input decrease.

Overall, GST will help the industry to grow and flourish with increased digitization and access to data services at lower costs.