New Delhi: As a response to what has long been referred to as the single biggest hurdle to the movie business in India, the rate of entertainment tax under GST (goods and services tax) has been fixed at 28%.
Over the years, the film business has suffered due to different tax rates in different states on film exhibition. In India, movie tickets and large commercial shows incur an entertainment tax.
To be sure, the Hindi film industry is likely to be the biggest beneficiary of the move, where entertainment tax is as high as 45% in states such as Maharashtra. But regional cinema, for which not only are tax rates low but ticket prices are capped in several south Indian states, seems to be at a disadvantage.
“Marathi, Bengali, Kannada and Malayalam cinema has worked with very low tax rates up until now—somewhere in the range of 10-15%. For them, it’ll mean nearly double rates,” said film trade and business expert Girish Johar.
“While ticket rates for Hindi should either fall or remain the same, regional film producers and exhibitors will have to take a call on whether they want to pass on this extra burden (of higher tax) to consumers.”
Johar said another advantage of GST will be the abolition of the concept of net box office. Entertainment tax deducted from gross earnings makes for net collections. India will now work with figures of gross box office collections just like Hollywood, which would lead to better clarity on the actual business done by a film.
The lack of clarity on ticket prices is a matter of concern for all stakeholders. Devang Sampat, director of Strategic Initiatives at Cinépolis India, said they would have to wait and study aspects such as distributor share and food and beverage components before making a comment.
Industry experts also emphasize that ticket prices in the country are a function of demand and supply. For instance, a film like Baahubali will get away with prices in the range of Rs500-600.
“The 28% figure is way higher than what is applicable today,” said Utkarsh Sanghvi, tax partner at consultancy firm EY India. “Our studies show the average tax rate across India stands at 8-10% currently and even states like Maharashtra with 45% rate, gives exemptions to new cinema halls.”