Impact of GST on media and entertainment industry

By Registrationwala

2nd May 2017

 

Goods and Services Tax (GST) in India will soon be a reality, with the maze of different taxes and the compliance difficulties set to leave us for good. All the existing indirect taxes will be merged together and charged in our bills as one tax, which is expected to be lower than the sum total of all the taxes we end up paying now.

GST will have its impact on almost every industry, with the media and entertainment industry being one of the important ones. And with India being a developing nation, where the reach of smartphones and technology is empowering media and entertainment industry everyday, it is important that we discuss the repercussions of the implementation of GST bill on this particular industry.

DTH and TV/Cable companies

With the taxes set to be merged into one, one of the major benefits will go to the Direct-to-Home (DTH) and cable companies. These two entities have been at the receiving end for a long time, with service tax (charged by the central government) and entertainment tax (charged by the state government) levied separately, not only complicating the process but also raising costs. Multi-system Operators (MSOs) have projected that they will save about 10 percent of the costs on the services they offer, most importantly on cable television.

Out of all the DTH companies, it is estimated that Dish TV will make the most profit because it will be able to retain the amount by which tax rates will be reduced. And hence the margins of profit will go up.

When pitted against each other, DTH operators are set to be more beneficial than cable TV companies, who will have to deal with increased tax rates that will be levied on the broadband services, something DTH operators do not deal in.

Movies and Multiplexes

The entertainment tax is set differently in different states presently, because it is levied by the state government. In the GST regime, it will be a single tax across states. And for the sheer reason that rates in say Delhi and Mumbai are different, the impact of GST will be felt differently.

For example, below are the percentage entertainment taxes levied in some important states of India:

Uttar Pradesh: in the range of 30-40 percent

West Bengal: 30 percent, and 2 percent for Bengali movies

Karnataka:30 percent again, with no tax for Kannada movies

New Delhi: 20 percent

Maharashtra: 45 percent, with no tax for Marathi movies

Karnataka :30% (Nil for Kannada Films)

Andhra Pradesh: 20% (15% for Telugu Films)

Uttar Pradesh -30% to 40%

Once the two taxes are clubbed, the rate is likely to be around 30 percent, which is a major cut-down from the rates anywhere in India right now.

Punit Goenka, who is the MD & CEO of Zee Entertainment Enterprises Limited (ZEEL), opined that GST will not only simplify businesses but will also help them flourish. “GST roll-out in the coming year could boost advertising spends as a part of potential savings in tax outgo might be reinvested,” he said, brilliantly alleging that the profits made could be fluxed back into the industry, leading to growth and development.

To explain it further, producers end up paying service tax or VAT depending on the kind of spending. Now when the movies are monetized in theatres, there is no service tax or VAT on that transaction. So there is a loss of credit here. Under GST, this will go away because GST does not make a distinction between a service tax and VAT. Both are the same. Hence, there is no credit lost, the input credit is now available to the producers, and it can help reduce the production costs. And if things go the right way, it can well reflect in the pricing on the tickets, which will go down.

Radio companies

For radio companies say, advertisements are a major, or sometimes, the only source of income. When GST comes into play, it will be less impacted than DTH companies, say, because the nature of business by a radio company involves dealing with other businesses , (B2B)and not necessarily customers, but they can well recover the additional taxes they pay from the advertisers. In the GST regime, the costs you incur on advertisements are a part of the input tax credit. Currently, service tax is levied on the the advertisements, which is charged by the central government. VAT is a state tax, as already discussed. Where things go wrong is that a credit of central tax against state tax is not allowed, and so the radio companies suffers, being already under the wrath of falling interest levels from the youth.

Customers: I, you, we

As discussed, because of profit margins projected to increase under GST, we will have more influx of investment in the industry leading to boom. So we will have more jobs, better infrastructure in the industry, leading to reduction in prices for the end customers. But it will happen for a period of time.

Simple procedures, less hassles

And it is not just about money. Film producers end up paying huge amounts of money to the government just in form of taxes. And in the form of multiple taxes, say for satellite rights etc, which makes it so, so confusing. There is separate paper work for every single one of them.  Once GST is live, all these taxes will be one. There will be no burden of maintaining compliances for all these different kinds of taxes. And it will make lives so much simpler for these production houses, helping them focus on the work at hand rather than the cosmetic hassles that the government seems to create.

A major hiccup

Although the plan is to have “one nation, one tax”, the government defeats this motive when it allows local bodies (example: municipalities) to impose “entertainment taxes” on entities like movies. It says that it is doing it to safeguard local flavour in this day and age of globalization, and one can see some reason into it, but the move majorly defies all that the government is trying to do.

Also, coming back to MSOs (Multi system operators), who will have to pay more tax for their broadband services. But the silver lining is that the companies still expect to make profit.

Conclusion

To round things up, GST is overall a good thing for the media and entertainment industry. Not only is the taxation system going to get simpler, the burden from the customers is going to be lifted. They have to pay one tax now, which is significantly lesser. What this will do is make the industry more profitable, because a part of the money saved will be injected back into the industry as an investment, and hence help it flourish. The rates of movie tickets, DTH subscription etc are also expected to come down. But it all needs patience. Since this is a pan-India project, it will not happen within a weekend, even when GST goes live. It will take some time for India’s rigid system to adopt this and to educate the people in remote areas about how dynamics have changed and about how they need to adapt.

 

Impact of GST on media and entertainment industry

2017-05-02