LBET has been allowed to leave some fiscal space of taxation for local bodies: FM

MUMBAI: Finance Minister Nirmala Sitharaman has said that the Local Body Entertainment Tax (LBET) has been allowed under Goods and Services Tax (GST) to leave some fiscal space of taxation for the local bodies.

Under GST, the entertainment tax has been subsumed, however, the government allowed state governments to make laws with respect to “taxes on entertainments and amusements”.

“The Constitution allows State governments to make laws with respect to “taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council” [Entry 62 of List II in the 7th Schedule of the Constitution]. The reason for the same is to leave some fiscal space of taxation for the local bodies,” Sitharaman said in the Lok Sabha.

She further stated that the details of entertainment tax levied by State Governments are not available with the union government since the levy of taxes on entertainments and amusements by local bodies is a state subject.

She also pointed out that the GST rate on cinema tickets has been reduced from 28% to 18% (if the ticket price is more than Rs 100) and from 18% to 12% (if tickets price is less than Rs 100).

According to the EY FICCI report, the LBET under GST would impose a significant burden on the entertainment sector. Levying LBET would not only increase the complexity and perpetuate the anomalies that arose in the previous tax system but would also essentially negate the relief intended and provided by the GST Council by GST rate reduction on cinema tickets.

It also noted that the M&E sector across the world is identified as a priority sector, apart from including entertainment in the VAT or GST base, they provide incentives to promote the sector. It further stated that no international legislation promotes, levies or supports a supplementary tax on filmed entertainment.

Internationally, films are subjected to VAT/ GST at reduced rates, reduced rates or standard rates.

Various reasons have been provided as to why LBET should not be introduced as a supplementary tax over and above GST:

  • State governments are going to be compensated for any loss of revenue arising on account of the introduction of GST in the first five years. The growth rate of 14% on the base year 2015-16 for arriving at such compensation is higher than the growth rate of state entertainment tax collections
    Entertainment tax revenues have been a miniscule portion of the state tax collections over decades of their existence
  • Adverse impact on people of the state as the overall additional burden of such excess tax would be passed on to the ultimate consumer
  • LBET would entail compliances at a local body level which prove to be impractical and cumbersome
    LBET on digital mediums of entertainment would be impossible to administer given the cross-state usage of such medium of entertainment
  • Prior to introduction of GST, the Indian indirect tax had a three-tiered tax structure viz, central taxes (such as Excise Duty, Service Tax, etc.), state taxes (such as State Value Added Tax (‘VAT’), Central Sales Tax, State Entertainment tax, etc.) and local body taxes (such as Octroi duty, Show tax, etc.). 17 different taxes levied by central, state and local body governments were subsumed under the GST.

M&E sector suffered from dual taxation of service tax and VAT, service tax and entertainment tax, octroi and sales tax, etc. on various transactions.

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