Bollywood seeks tax breaks from Budget 2014

July 9, 2014

By Shashank Chouhan and Sankalp Phartiyal

Bollywood is hoping that the newly elected government’s first budget will contain tax breaks that will let it write a happy ending, at least for this year and next.

The Indian movie business, led by the Mumbai-based Hindi film industry, hopes Finance Minister Arun Jaitley’s budget will reduce the tax burden on movie studios as well as theatre owners and operators, and will provide incentives that would let them open more theatres around the country to boost ticket sales.

While the entertainment tax on movie tickets varies from one state to another, filmmakers pay numerous other fees, such as a 12.36 percent service tax to the central government that is charged on payments to actors and film crews, as well as customs on any imports such as movie equipment. This, industry insiders say, makes it tough to make more money. In Maharashtra, Bollywood’s home state, the taxes on a movie can comprise up to 61 percent of a film’s budget.

“You need to treat us fairly, not penalise us because you feel we are just entertainers. We want to be treated at par with any other service industry,” said Kulmeet Makkar, CEO of the Film & TV Producers Guild of India Ltd.

Makkar said he hopes the government will roll out a Goods and Services Tax that would replace all major indirect taxes and simplify the tax structure.

Tax expert M.S. Mani, a senior director at Deloitte in India, said a single percentage is not yet final as the law hasn’t been finalised. In any case, there will not be a rate specific to the movie industry, he said.

Ajit Andhare, COO at Viacom18 Motion Pictures, told India Insight that entertainment taxes are the biggest problem that the industry faces. Of course, they are good for central, state and local government coffers. In total, India’s states made more than 10 billion rupees ($167 million) in 2009-2010 from entertainment taxes, according to finance ministry statistics.

State governments could make up for lost revenue if there were a general, simplified tax because it would be spread over a wider base of individual taxpayers.

Traditionally, movie tickets have been taxed at a higher rate because there was a perception among tax authorities that studios and theatres underreported their revenue, but as more multiplex chains report their revenues as publicly traded companies, there is less concern that this is a problem, said Andhare.

Higher taxes on movie theatres also creates a “price wall,” said Andhare. “In a large country of 120 crore (1.2 billion) people, you actually have a very, very small movie-goer base. One reason is the very, very high entertainment tax,” he said.

Film trade analyst Komal Nahta projected that the industry’s revenue would increase by 25 percent if the entertainment tax were to be rolled back. The industry was estimated to be worth 125.3 billion rupees ($2.09 billion) in 2013, according to a KPMG report released this year. Nahta agreed with Viacom18’s Andhare that entertainment taxes are dated in an age when Internet piracy was on the rise and people pay nothing to watch movies, effectively stealing revenue from producers and cinemas.

“Those who go by the law (watch movies in theatres) have to pay more and those who are stealing somebody’s copyright can go scot-free by watching films for free,” Nahta said. Potential revenue losses to the film industry because of piracy were estimated to be between 31 percent and 55 percent in various studies.

(Editing by Robert MacMillan; follow Shashank on Twitter at @shashankchouhan, Sankalp @sankalp_sp and Robert @bobbymacReports | This article is website-exclusive and cannot be reproduced without permission)

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