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Entertainment tax hike in Delhi to hit multiplex operators
MUMBAI: Arvind Kejriwal-led Delhi government’s decision to hike entertainment tax on cinema halls from 20 per cent to 40 per cent has come as a shocker to the film exhibition industry.
What the state government’s proposal effectively means is that the cinema owners will have either to increase their ticket prices, or absorb the cost on their own. Hence, even as the government is planning to fill its coffers, the move has come as a double whammy for the cinema owners as their business is dependent on footfalls, which has already seen a decline due to poor content line-up.
Delhi contributes a substantial amount of box office collections for Hindi movies and the hike in entertainment tax would negatively impact cinema halls, including PVR and Inox.
PVR Cinemas, the biggest player in Delhi–NCR, has refused to comment on the impact on business. However, it is learnt that the multiplex major has made a presentation to the Delhi government. Moreover, if the company decides to absorb the additional tax, it will hit the multiplex operator’s EBITDA by approximately Rs 10–11 crore (Rs 100–110 million) on yearly basis.
Incidentally, more than 20 per cent of PVR’s business comes from Delhi where it has 13 properties. Outside Delhi, but within the NCR of Noida, Faridabad and Gurgaon, PVR has eight properties.
DT Cinemas, which PVR has agreed to acquire, owns four properties in Delhi and four in NCR ex Delhi.
“This is a very regressive step by the government as it will divert the traffic to NCR and the drop in footfalls will ultimately reduce tax amount. Ideally, the government should have reduced the tax, which in turn would have increased the footfalls,” commented a senior executive with a multiplex chain.
“Look at the southern states like Andhra Pradesh and Tamil Nadu. There is no tax on regional films, which has kept ticket prices very low. It has helped increase footfalls,” he added.
Multiplex operators are expected to pass on the extra tax burden to the consumers. But ticket rates in Delhi are already higher compared to Noida and Gurgaon. On a ticket of Rs 200, if earlier tax was Rs 40, now it will be Rs 80. One has to look at it from a family’s perspective, as the additional burden on a family of four would be Rs 160.
“This will discourage patrons from coming to cinema, especially for smaller films,” a senior executive of a leading multiplex company said.
What multiplex operators worry is that their ability to further raise ticket prices would reduce.
Decline in footfalls
Fear is that there could be a fall in footfalls due to the hefty increase in entertainment tax, particularly for smaller movies and with no big star cast.
Financial year ended 31 March 2015 was anyway a disappointing year for multiplex operators as the bad performance of movies resulted in lower footfalls, which in turn affected the operating profit and margins of the companies.
The only two listed multiplex companies, PVR and Inox Leisure, suffered owing to the disappointing box-office performance of movies during the last fiscal.
While PVR saw a 13 per cent drop in footfalls in FY15 (comparable properties), Inox Leisure witnessed a 9 per cent fall for the same properties.
The only respite for the multiplex players was that they managed to increase their average ticket price (ATP) during the fiscal. PVR’s ATP for comparable and total properties saw an increase of 8 per cent and 5 per cent respectively. Similarly, Inox witnessed an increase of 3 per in the number of comparable properties and 5 per cent in total properties’ ATP.
Multiplex owners fear that other states could also hike the entertainment tax by seeing it as a revenue source generation.