GST may resolve the dual taxation impact on Media & Entertainment sector

uday-pimprikar_ey
The media and entertainment (M&E) sector has seen overall growth in all the segments, driven by rapidly rising incomes and evolving lifestyles. However, the M&E sector is plagued by multiple taxes at each level of the supply chain, leading to a complex tax structure with tax compliances at the Union, state and municipal levels.

While GST would subsume the plethora of taxes and help achieve the objective of one nation, one tax, entertainment tax, which constitutes the last leg levy in the sector, could still be applicable to the extent levied by local bodies such as municipal corporations and panchayats.

The M&E sector deals with exploitation of intangibles/copyrights, and therefore, their classification as services could bring respite and possibly reduce indirect tax litigations on account of their exploitation. However, the sector players are waiting for notifications/circulars to bring clarity on this aspect.

With the Government now advancing toward making 1 April 2017 a realistic deadline to implement GST, the M&E sector foresees it as a positive step toward overall accelerated growth in the sector.

In this backdrop, the key impact points under the GST regime relevant for specific segments of the M&E sector are encapsulated below.

Multiplexes

Film exhibition at present is subject to punitive entertainment taxes, which are imposed at a retail level and are not fungible against any taxes charged on procurements made by multiplexes, such as service tax on rentals and VAT on goods procured. A unified GST chargeable through the supply chain should significantly mitigate the cascading impact of tax and thereby reduce costs. However, entertainment taxes imposed by local bodies may be considered negative if they are imposed at punitive levels and are not recoverable from the general public.

DTH and cable services

DTH and cable services are subjected to service tax and also incremental entertainment tax. While service tax and state-level entertainment tax will be subsumed in GST, the effective entertainment tax incidence is expected to reduce.  However, the overall impact on the tax and revenue side will depend on the quantum of entertainment tax imposed by local bodies.  Under the GST regime, the tax cost on procurements for DTH and cable service providers should reduce on account of larger availability of credits.

Film producers and studios

The current tax regime exempts theatrical revenue from most of the output indirect taxes. Accordingly, a significant part of the taxes charged on procurements is not available to be set off against output tax liability and hence adds up to the cost of supplying goods/services. Cascading taxes on account of such non-creditable expenses generally amount to almost 7%—10% of the overall procurement cost. Imposing GST through the supply chain should allow producers and studios to set off these taxes, thereby reducing costs materially.

With the implementation of GST, the existing pain points for the M&E sector such as dual taxation, cascading taxes and exorbitant rates should be resolved. However, the effectiveness of these positive changes is likely to depend on the fate of local body entertainment taxes.

(Vishal Negandhi, Manager, EY India has also contributed to this article)


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