Close on the heels of the multiplex industry expressing disappointment on being put in the highest tax slab classification of 28 per cent, the Finance Ministry on Tuesday asserted that entertainment services will face a lower tax incidence under the Goods and Service Tax (GST) regime, slated for rollout from July. In a statement, the Ministry said that taxes on entertainment and amusement have been subsumed in GST except those levied by local bodies such as municipal and panchayats.

“The rate of GST approved by the GST Council on services by way of admission to entertainment events or cinematography films in cinema theatres is 28 per cent. However, the entertainment tax rates in respect of exhibition of cinematography films in theatres/cinema halls, currently levied by States are as high as 100 per cent in some of the States,” an official statement said.

The Multiplex Association of India on Monday had urged the government to “recommend a significantly lower GST rate for this sector, and allow a system whereby entertainment tax levied by local bodies is allowed to be set off from GST liability.” Industry players said they may have to increase the price of movie tickets.

Entertainment tax varies from State to State. In States such as Himachal Pradesh and Assam it’s nil, while in several others it ranges from 20 to 30 per cent. However there are exceptions, as in Maharashtra, Jharkhand and Bihar where it works out to be much higher. For a pan-India player, too, the tax incidence could vary depending on the States where it has majority of its plexes.

PV Sunil, CEO and Director, Carnival Cinemas, said on an average for a pan-India multiplex operator, the effective tax currently works out to be an estimated 22-23 per cent, which means tax incidence on multiplexes on tickets alone has increased by 5-6 per cent. “In a State such as Kerala, where local bodies levy entertainment tax, which will not get subsumed in GST, the tax incidence for multiplexes will be much higher. There is only so much the industry will be able to absorb,” he added.

Nitin Sood, CFO, PVR, said: “It is disappointing that the multiplex industry has been clubbed along with casinos and gambling and other luxury services. This will adversely impact the entire value-chain.” Besides movie tickets, the multiplex industry will also see an impact due to rise on taxes on aerated drinks and other food items.

However, analysts point out that under GST, the multiplex industry will be eligible for full input tax credits.

Biren Vyas, Partner, Grant Thornton said: “Multiplexes will be able to avail input credit on capital goods procurement, maintenance and service contracts and on temporary transfer of theatrical copyright for exhibition-related contracts.” He added that multiplex industry will benefit from the standardisation of entertainment tax across the country and on a pan-India level it will bring in more tax efficiency for the industry.

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