GST Key impact on Entertainment and Media sector – Detailed Analysis

GST Key impact on Entertainment and Media sector: GST was introduced in India on 1 July 2017 and was applicable throughout the country except in the state of Jammu & Kashmir where it was introduced on 8 July 2017. Introduction of GST is a significant step in the field of Indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax and allowing set-off of prior-stage taxes, it would mitigate the ill effects of cascading and pave the way for a common national market. Now check GST Impact on Entertainment and Media Industry from below….

GST Impact on Exhibition of Films

Pre-GST Post GST
Movie tickets: Service tax or VAT was not levied on sale of movie tickets. However, state specific Entertainment tax ranging from 15% to 110% (with an average of 30%) was levied on sale of movie tickets

Television: There was dual levy of service tax (15%) and Entertainment tax (in the range of 8-12%) on broadcasting services (D2H / Cable TV services)

Movie Tickets:

  • GST rate of 18% in case where price of tickets is INR 100 or less
  • GST rate of 28% in case where price of tickets more than INR 100

Television: Broadcasting services attract GST rate of 18%

GST Impact:

Entertainment tax subsumed under GST and fungibility of input tax credits: Before GST regime, the tickets of films used to attract Entertainment Tax based on the State laws. No set off was provided for Entertainment Tax against Service Tax or VAT paid by the exhibitors on procurements and so the levies were cumulative and the ultimate customer used to bear the burden of taxes. With the introduction of GST, the entertainment tax levied by the State Government is subsumed, which may reduce the final cost of movie tickets to consumers in states where Entertainment tax was higher than GST rate

Power provided to Municipality to Tax on entertainment and amusement:

Under GST regime, an authority is given to local bodies to levy and collect taxes on entertainment and amusement. This appears to be a backdoor entry of entertainment tax and if levied by the local bodies, would increase the cost to consumers.

For instance, Entertainment tax is levied in Tamil Nadu at the rate of 8% on Tamil Films and 20% on other films which results in significant increase in taxes on movie tickets. Also, levy of Entertainment tax leads to cascading effect of taxes since Entertainment tax amount would be included in the base value for levy of GST

GST impact on Exhibitors – Food & Beverages (F&B)

Pre-GST Post GST
There was an issue of dual levy of VAT and Service tax on supply of F&B at theatre counters. Though F&B were purchased outright by exhibitors and sold at counters, in certain cases there is an element of preparation involved (like preparing pop-corns, coffee etc.) and hence, service tax demands were raised on supply of F&B Supply of F&B over the counter at theaters is to be treated as restaurant services and levied to GST rate of 18% (A/c counters) and 12% (non- A/c counters)

Impact: Issues as regards classification of an activity as a sale of goods or services and levy of VAT or Service tax will go away 

Film Distribution

Pre-GST Post GST
Transfer of copyright for exhibition of movies in Theatre:

  • Temporary transfer or permitting use of enjoyment of copyright relating to cinematograph films for exhibition in a cinema hall or theatre was chargeable to Service tax.
  • IPR such as trademarks, copyrights were also treated as goods and attracted state VAT
  • Grants of license for theatrical release was exempt from service tax
  • Due to exemption from Service tax and VAT, producers incurred significant tax cost on procurement of goods/services including service tax charged by actors, technicians etc.

Transfer of copyright for exhibition on Television:

  • In case of certain lease of film/television content rights, there was a controversy as to whether the transactions were that of a sale of goods or provision of service and hence, there was an issue of dual levy of Service tax and VAT on transfer of copyright for exhibition on television
Transfer of copyright for exhibition in Theatre and Television:

  • Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods is to be treated as supply of services attracting GST rate of 12%

Impact: Issue on levy of service tax or VAT on license to use the copyright will go away and thereby the effective tax rate on such services will reduce

Levy of GST on grant of license for exhibition in theatre will necessitates an increase in working capital requirement but will also allow smooth flow of input tax credit in the value chain

GST Impact on Advertisers

Pre GST Post GST
  • Print media was exempt from service tax
  • All other advertisement services were subject to service tax of 15%
  • Selling of spare for advertisement in print media attracts GST rate of 5%
  • All other advertising services attract GST rate of 18%

Impact:

  • No tax exemption to print media which enables them to now claim input credit on all services procured by them.
  • GST is in addition to the equalization levy introduced on online/digital advertising

GST Impact on Artistes / Sponsorship / Brand Promotion

Pre GST Post GST
  • Services of film artistes were liable to a service tax of 15% on forward charge basis
  • Sponsorship services, subject to certain exceptions attracted service tax
  • Brand Promotion were also liable to service tax
  • Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like, to be taxed at 18% GST on reverse charge basis
  • Supply of services by artistes other than above, to be taxed at 18% GST on forward charge basis
  • Sponsorship/Brand Promotion services will be liable to GST.

Amusement Parks

  • Indian amusement and theme park industry to be taxed at 28% under GST as against service tax of 15% along with entertainment tax of 1.5% to 110% previously
  • The move to tax amusement parks at the highest rate appears to equate the sector with luxury entertainments like casinos, betting, race courses
  • This move is overlooking the industry’s role in creating social infrastructure and attracting tourism for the country

Other Challenges and Open Issues

Registration – Facility of centralized registration is done away with which necessitates business to take state wise GST registration. Multiple registrations not only leads to increase in compliances but also complicate the transfer of services among offices of the same company

Input tax credit restrictions and accumulation

  • Production houses are not able to claim input tax credit on cost incurred at outdoor shooting locations where its does not have a GST registration. For instance, renting of immovable properties (shooting locations)
  • ITC in respect of F&B, outdoor catering etc.is specifically restricted under GST which results in significant cost for production houses
  • One more important issue is that in a case of a film producer or a television content producer, GST rates for films or television content is 12%. The major portion of input in a film or a TV serial is services given by artists, technicians and other persons and various rentals paid which attract 18% GST. So major inputs are received with 18% GST credit but the output is charged at 12% GST rate. In case a film does not fair well or could not be exploited to the extent of a breakeven level, ITC of GST paid will remain unutilized and may have to be written off. Similarly, in a case of TV serials, which cannot be sold at a remunerative price, ITC may remain unutilized

Value of supply for barter and exchange transactions

  • Barter and exchange transactions are a common arrangement in Media and Entertainment Industry wherein the production houses often take free movie ticket codes from exhibitors for promotional activity against transfer of copyright of films.
  • As per the valuation rules, the value of free ticket codes at the time of supply is to be included in the value of transfer of copyright. However, it is difficult to determine the value of free movie ticket codes at the time of supply since, typically, the recipients who are given the free movie tickets (as promo codes) can use the same to book a movie show for any time at multiple locations. The ticket rates fixed by the exhibitor for different show timings and different locations would differ and hence, it is difficult to determine the value of free movie ticket codes at the time of supply

States not entitled to grant tax exemption Status

  • It has been a practice of many States to give an exemption for regional films as well as films spreading positive messages to Society to give relief of entertainment tax or to grant an exemption for a period. This power of the State will get abolished as GST will be levied and the State may not be able to give relief to such films

Overall Impact of GST on Entertainment and Media sector

The impact of GST on the entertainment industry can be both positive and negative, depending on the state and the business sector

GST Key impact on Entertainment and Media sector

The film industry stands to benefit significantly with the introduction of GST. The overall reduction of cascading effect of taxes should have a positive effect on the cost of production / distribution and exhibition of films. However, concerns remain on specific areas such as increased cash flow issues on account of levy of GST on entire value chain and significant increase in compliances (like registration, return filing and tax payment).’

Additionally, one need to wait to see, the extent of power exercised by local bodies / municipality to levy Entertainment tax to analyze the exact impact of GST on the industry

On the other hand, amusement parks which is one of the major source of entertainment is on the receiving end of the new tax due to increase in the rate of tax

Advocacy

  • Input tax credit restriction – due to non-availability of local GST registration
  • Inter branch supply of services – determining the place of supply as well as the valuation
  • States should not be given right to levy local taxes post GST implementation
  • Anti profiteering – how can the industry substantiate that the benefit of GST has been passed on