The Hindu Business Line : Movies and levies

The State Governments would do well to heed the call of the Information and Broadcasting Minister, Mr Priya Ranjan Dasmunsi, for a rationalisation of the entertainment tax structure on the film and broadcasting industry at the recent conference of State-level Information and Broadcasting Ministers. While some progress has been made in the past, which saw the rate on exhibition of films in movie theatres (the most common form of tax burden) being brought down from 75-100 pe r cent to a relatively more modest 50 per cent, it is still way too high.

Movies can no longer be regarded as a luxury pastime, considering they are an integral part of the common man’s life. The punitive levy cannot also be justified as something in the nature of a ‘sin tax’, similar to that imposed on liquor or tobacco. For all the debate that has gone on about the effects of movies, especially, on young minds, the consensus today is that movies are a harmless diversion. The tax structure, then, must reflect its relevance to those in the lower strata of society. More so, when the ‘value added tax’ imposed on a wide range of goods of mass consumption is just 12 per cent. The iniquitous nature of a punitive tax on movie tickets can be seen from the fact those who watch films on cable television or DTH broadcasts end up paying far less than those sitting on the floor in a makeshift auditorium. It makes little sense for the Centre to offer income-tax concessions for putting up multiplex cinema complexes or duty exemption for digital cameras but remain a mute spectator to a distortionary tax regime at the State level.

Perhaps in the initial days of development planning post-Independence, movies might have been viewed as an avoidable distraction from the serious purpose of nation-building and, hence, slapped with a deterrent levy. The fact that most States had also imposed prohibition then meant that a tax on movie tickets became a handy source of additional revenues. The situation today is vastly different. Taxes on liquor, consequent to the lifting of prohibition by all the States, barring Gujarat, have become the mainstay of revenue resources for States, even as entertainment tax revenues — a mere 0.3 per cent of the total tax revenues — have been reduced to practically nothing. From a fiscal perspective, tax reform should not pose a serious challenge. But if States insist on some kind of a compensation for reforming the entertainment tax structure, the Centre can work out a mechanism on the lines of the scheme for introduction of value added tax, worked out a few years ago.

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