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Uniform Entertainment Tax Rates. The Multiplex Association of India. Executive Summary. Industry background Entertainment industry outperformed all other industries in 2001, emerging as one of the fastest growing sectors with 30% growth rate

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Uniform Entertainment Tax Rates

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uniform entertainment tax rates

Uniform Entertainment Tax Rates

The Multiplex Association of India

executive summary
Executive Summary
  • Industry background
    • Entertainment industry outperformed all other industries in 2001, emerging as one of the fastest growing sectors with 30% growth rate
    • Film revenues constitute close to 50% of the total entertainment industry, of which theatrical exhibition constitutes around 80% of film revenues
    • Most other entertainment components, like cable television, music, etc are largely film dependant
  • Problems faced by Indian film exhibition industry
    • Prohibitively high e-tax rates
    • Disparity across States in e-tax rates
  • Prohibitively high tax rate leads to business being unviable, causing many existing cinemas to close down
  • Absence of adequate profits to plough back leads to run-down cinema theaters with poor ambience and facilities and no technological upgradation
  • High tax rates reportedly leads to under-reporting of collections and leakages of revenue
  • Unviability caused by high tax rates discourages new investments in film exhibition sector
  • Poor tax compliance practices leads to corporate players not entering the business, depriving it of professional management skills
what needs to be done
What needs to be done

E-tax rates need to be:

  • brought down to more reasonable levels
  • standardized across States
what is a reasonable tax level
What is a reasonable tax level?
  • Most manufactured goods in India pay a 16% excise duty and a 4% sales tax
  • Services in India are taxed at 5%
  • Average e-tax rate in the region is 10% - 15%
  • Why should e-tax on cinema exhibition be higher than 24%???
advantages of reasonable and uniform e tax rates
Advantages of reasonable and uniform e-tax rates
  • For cinema exhibition business
    • Business becomes viable leading to cinemas theatres continuing to remain in operations
    • More profits will help renovation / upgradation
    • This, in turn, will lead to higher occupancies, further boosting viability
  • For new investments in exhibition sector
    • Improved viability will bring in more investment in the business
    • Corporate interest will bring in professional management skills
  • For film production industry
    • More outlets for exhibition, particularly regional / small budget films
    • Longer run for commercial films
    • Overall improved viability leading to more films being produced
  • For society
    • More entertainment options
    • Better quality entertainment options
    • Areas around cinema developments become attractive destinations, boosting general commercial activity and infrastructure development
    • Increased employment opportunities in film exhibition, and eventually film production, sectors
  • For government
    • More cinemas * higher occupancies = higher box office collections = higher tax collections, in the long term
    • Higher sales tax, property tax and stamp duty collections because of development around cinemas
in summary
In Summary
  • In the long term, a reasonable rate of tax almost always leads to higher tax collections due to better compliance, and new investments in the sector
  • It is therefore proposed that the process of rationalization of e-tax rates be carried out and a uniform entertainment tax rate of 24% be made applicable to all states.