Courtesy : CA – Hemant P. Vastani
India is globally the fifth largest media and entertainment market, (Source Deloitte report.) The Indian media and entertainment industry is a raising sector, with a rapid growth curve. In 2015, the industry grew at 11.76 per cent with a market size of $19 billion. Overall, the industry is expected to grow at CAGR of 13.98 per cent till 2018. The report said by 2025, the industry is expected to attain a market size of $100 billion.
Currently,key challenges faced by the industry from a tax perspective are effective tax rate, managing tax risks, implications for cross-border transactions, cash-blockage on account of high withholding tax rate, and multiplicity of indirect taxes. Presently.in many transactions input taxes paid are not available as credit and are regarded as tax cost. Likewise, many transactions attract dual tax levies, because of the peculiar federal structure of indirect tax structure in India.
GST, as the biggest tax reform in India, will subsume most of the indirect taxes.
GST is a welcome step. It will unify the indirect tax administration in India and help the country in two ways. First it will simplify and make it easy for the consumers to understand. Second it will significantly improve the ease of doing business in India.
Under GST, service tax or state tax will be available as a credit which will reduce overall costs and eliminate any dual levies of service tax and VAT on transactions. However, media companies will have to pay additional local body tax over and above the one proposed in GST.
GST impact – Broadcast services
Currently, consumers are paying a service charge tax of around 14.5-15% for all broadcast services like Television that includes Cable and DTH also films and digital content. Besides this, an entertainment tax of around 8-12% is further levied increasing the average tax to as much as 25%. However, once GST comes into play, consumers would have to pay a single tax between that can be anything between 18-20%. Hence, the overall tax burden on consumers is set to reduce.
GST impact – Multiplexes and Film Production Houses
Currently multiplexes are paying 27% tax on ticket sale as well as levy on food and beverage revenue. Once GST comes into the country, GST would increase 4-5% on the company’s margin . Sometimes film producers are expected to pay exorbitant amounts of money in the form of service tax for processes like theatrical rights, satellite rights, etc.GST when comes into play, all taxes would come under the same category. The bill would also benefit multiplexes that are currently dealing with tax processes from different states of the country. This means that the tax rates would go down and the profits for companies would shoot up. Also, the hassles of dealing with several state Governments with varied rules would be solved for good.
The cascading taxes generally amount to almost 7-10 per cent of the overall procurement cost. Imposing GST through the supply chain should allow the producers and studios to set off these taxes, thereby reducing costs materially
GST sounds like a dream, but a major hiccup in store for the media industry is the entertainment taxes that the Government has allowed local bodies like municipalities to impose on movies. The Government has allowed this in order to safeguard the interests of the local bodies giving them the freedom to choose the rate that they want to impose.
The whole purpose of the GST to serve as a single tax gets defeated with this allowance. The best case scenario would be if the Government subsumes this tax under GST Bill itself.
Companies could see a rise in compliance costs with the filing of multiple returns across every state they operate.
So, in simple terms the GST will do more good than harm for the entertainment industry on the whole. While subscription and film viewing rates will decrease, profits for multiplexes are likely to go up. But all this will not happen in a day or 2.