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Producers Guild urges govt to subsume ent tax under GST

MUMBAI: The Indian film industry has been voicing its concerns over the forthcoming GST bill because the proposed bill does not subsume all the taxes levied on the film sector.

The Film and Television Producers Guild of India (FTPGI) feels that the entertainment taxes levied by the local bodies must be subsumed under the proposed GST regime.

In a statement, the guild mentioned, “We fail to understand as to why the government intend to keep entertainment taxes levied by the local bodies outside the GST even though the entertainment levied by local bodies is miniscule.”

On 6 May 2015, Lok Sabha passed the Constitution (100th Amendment) Bill, 2014 that gives effect to the taxing powers of the Central and state governments to make suitable changes to introduce Goods and Services Tax (GST) 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 manufacturing of goods (except for excise duty on tobacco products, petroleum, and alcohol for human consumption) has been removed. Similarly, this gives exclusive power to tax on the sale and purchase of goods, all types of entry of goods, luxury, betting, gambling, and entertainment tax (unless levied and collected by local bodies) except for tax on purchase and sale of alcohol for human consumption.

According to the FTPGI, most of the taxes will be subsumed under GST with one notable exception of the entertainment tax, which is levied and collected by local bodies. The bill allows entertainment tax to be levied and collected by local bodies (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, has been fully subsumed under the GST. However, local body entertainment tax, estimated at Rs 25–30 crore across India, is kept out of the GST, allowing such local bodies to charge an incremental entertainment tax over and above GST.

FTPGI president Mukesh Bhatt said, “Internationally, films are considered arts and cultural ambassadors and received many incentives and financial support from governments around the world. Indian films have contributed significantly to uniting the nation and taken Indian culture to an international audience. Films should be treated on a par with other services and not singled out for entertainment tax. In fact, the government intends to treat entertainment on the same scale as sin goods like alcohol and tobacco, which are also kept out of GST.”

The EY report titled ‘Subsume entertainment tax under 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 to the environment (petroleum). There are no negative externalities associated with entertainment.

Excel Entertainment Pvt Ltd co-founder and producer Ritesh Sidhwani stated, “Levying this tax at the local body level will neither be simple nor yield much revenue. There are 640 districts in India. Even if a small percentage of the local bodies seek to impose the tax, compliance and enforcement will be a nightmare.”

Further referring to the EY report, FTPGI stated that for local governments, the most suitable tax base is real estate property, which is immobile and can be readily 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.

Dharma Productions Pvt Ltd’s Karan Johar added, “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 businesses’ and ‘tax certainty’ in India.”

The producers believe that even though the tax would be charged and collected from theatres, film producers will be impacted since the producers generally enter into revenue sharing arrangements with the theatres, 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.

FTPGI CEO Kulmeet Makkar said, “The FTPGI has on numerous occasions reached out to the Central government, empowered committee of the State Finance Minister, and Parliamentary Standing Committee. However, this has not been addressed in the bill.”