Simplified Tax regime critical for growth of the Film Industry: Guild

Film and Television Producers Guild of India urges the Government to subsume local bodies’ entertainment tax fully under GST

Lok Sabha on 6 May 2015 passed The Constitution (One Hundred Amendment) Bill, 2014 that gives effect to change in taxing powers of the State and Central Governments and making suitable changes to introduce Goods and Services Tax in India. The Bill seeks to subsume almost all indirect taxes charged by Central and State Governments. Exclusive power of the Central government to tax all services and manufacture of goods (except for excise duty on tobacco products, petroleum 

and alcohol for human consumption) has been deleted. Similarly, exclusive power to tax on sale and purchase of goods, all types of entry of goods, luxury, betting and gambling and entertainment tax (unless levied and collected by local bodies) except for tax on purchase and sale of alcohol for human consumption. It is evident that most of the taxes will be subsumed in GST with one notable exception of the entertainment tax levied and collected by local bodies. The Bill allows the entertainment tax to be levied and collected by local bodies (i.e., panchayats and municipalities). The tax would be over and above the State and Centre GST on entertainment.

The local body entry tax (such as Octroi) estimated at Rs 14,000 crore per annum for the State of Maharashtra alone have been fully subsumed in GST. However, local body entertainment tax estimated at Rs 25 – 30 crores across India is kept out of GST allowing such local bodies to charge an incremental entertainment tax over and above GST.

President of the Film Guild, Mukesh Bhatt stated that “Internationally, films are considered as arts and cultural ambassadors and offered many incentives and financial support governments around the world. Indian films have contributed significantly in uniting the nation and taken Indian culture to international audience. Films should be treated at par with other services and not be singled out for the additional entertainment tax. In fact, the Government implies to treat entertainment at par with sin goods such as Alcohol and tobacco which are also kept out of GST”

The EY report titled “Subsume entertainment tax in GST” states that Supplementary levies in addition to GST are warranted only for products that are harmful to health such as tobacco and alcohol or those that are detrimental for the environment (petroleum). There are no negative externalities associated with entertainment. It must be considered at par with other goods and services and should be given a fair tax treatment.

Ritesh Sidhwani, Producer and Co-founder of Excel Entertainment Pvt Ltd further added that “Besides, levy of this tax at the local body level will neither be simple nor yield much revenue. India has a total of 640 districts. Even if a small percentage of the local bodies seek to impose the tax, compliance and enforcement will be a nightmare.”

The EY report states that for local governments, the most suitable tax base is considered to be real property, which is immobile and can readily be identified within the boundaries of a given jurisdiction. Entertainment, being mobile and available in diverse forms, is not a suitable base for municipal/local taxation. The situs of entertainment is important for municipal/local bodies that collect tax if the source of entertainment is within the boundaries of their jurisdiction. With the advent of modern technology, movies and films can be watched not just in cinema halls or through cable or DTH connections, but also on computers, laptops and media players. Entertainment signals could be beamed from a satellite and received/consumed anywhere within the footprint of the signals, which could be the whole of the country or the continent. At any given time, it would be difficult to determine whether the film is being watched within the limits of the municipal/local body.

Karan Johar, film producer at Dharma Productions Pvt Ltd stated that “It will be almost impossible for the film producers to estimate the tax revenues with any precision. This appears to be against the government policy of facilitating ‘ease of doing business’ and ‘tax certainty’ in India.”

It is believed that even though the tax would be charged and collected from the theaters, film producers are impacted by it since the producers generally enter into revenue sharing arrangements with the theaters, which are based on revenues net of any taxes applied on the admissions. They would need to know the taxes applied by each of the local bodies to determine their share in the revenue pool.

Kulmeet Makkar, Chief Executive Officer - Film Guild mentioned that “The Film Guild has on numerous occasions reached out to the Central Government, Empowered committee of State Finance Minister, Parliamentary Standing Committee. However, this has not been addressed in the bill.”

The Constitutional amendment bill shall now be tabled in Rajya Sabha. The Film Guild urges the Government all entertainment taxes, whether levied by the States or local bodies, be subsumed in the GST.

The Government can implement this proposal by making amendment to The Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 by deleting entry 62 to the List II (State List) to the Seventh Schedule to the Constitution of India.