Entertainment tax for Tamil films may go, due to GST

GST Act specifies the following taxes and levies of Central and state governments would be subsumed under GST: i) Service Tax ii) VAT/Sales tax and iii) Entertainment tax (unless it is levied by the local bodies)/ Luxury tax. 

Currently service tax is charged at 15 per cent for services provided by artistes, technicians and various service providers for film production. GST will replace service tax, which is expected to be 18 per cent for entertainment industry. Cost of film production shall rise by 3 per cent. 

Combine GST with demonetisation. All payments to artistes, technicians and service providers for films must be paid online or via cheque, as cash payments are no longer feasible. Once it is paid officially, the Tax Deducted at Source (TDS) must be made by producers and the GST implication must be borne by the producer or the receiver. As most artistes and technicians would demand net payment after GST, the cost is going to add for all payments made officially. If until now, producers were paying 33 – 50 per cent by online/cheque (and balance by cash) and absorbing the service tax, with GST and demonetisation, it will be 18 per cent GST on 100 per cent of payments. This increase in cost of services will further add to overall film cost. 

The TN State Government has been charging 5 per cent Value Added Tax on all perpetual copyright sales (including satellite, music, remake and digital rights). This VAT would be replaced by GST at 18 per cent. This may lead to buyers reducing the buying price to absorb the GST cost. TSo, revenue reduction is a possibility. 

The biggest change would perhaps be in the area of Entertainment Tax. With GST, there will be no more Entertainment Tax, which is currently charged at 30 per cent in cities like Chennai, Coimbatore and 20 per cent in other big and smaller towns on tickets. It will now be rationalised and charged at 18 per cent flat in the entire state.. Tamil films cannot look for ‘Tax Exemption’. This may not translate into any reductions in ticket price. However, the big loss is going to be ‘no tax exemption’ for Tamil films; currently availed of by almost 80 per cent of films. The producers must be prepared for reduction in distributor share by 18 per cent as entire sales would be accounted and GST will be deducted on ticket prices. 

In the long term, GST is expected to bring transparency in payments and revenue accounting along with a unified tax system, in the short term, impact would be severe on non-compliant producers. The way out is making the entire film business transparent by accounting all receipts and payments to claim GST credit.