The final passage of the Goods & Services Tax Bill after it receives the assent of at least half the state assemblies should bring much cheer to the media and entertainment sector. That is, if the standard GST rate stays within the 17-18 per cent range as recommended by the government-appointed panel headed by Arvind Subramanian.

Introduction of the GST will bring relief in terms of a lower tax rate. Apart from that, companies will also be able to claim input tax credit- adjustment of the tax paid on inputs against that paid on the final output- in a more comprehensive and smooth manner, unlike before.

So, who will be the likely gainers and losers? While multiplex operators and DTH (direct to home) and cable TV companies should benefit, TV broadcasters and print media companies are expected to face higher taxes under the GST regime.

Good show expected

Currently, multiplex operators pay entertainment tax (varies from state to state) of 21-22 per cent on their gross box office collections, on a pan-India basis. They also pay value added tax (VAT) of 11-12 per cent, on an average on sale of food and beverages. Replacement of the existing entertainment tax and VAT by an 18 per cent GST rate will therefore imply a lower tax burden for multiplexes. This is because box office collections (which attract the higher entertainment tax) account for 60-65 per cent of a multiplex’s revenue while food and beverage sales (which attract the lower VAT) a smaller 20-25 per cent.

Also, as Upen Shah, CFO, Inox Leisure, points out, multiplexes will also be able to claim credit for the 15 per cent service tax paid on a host of services used by them such as property rent, housekeeping and security. Today, credit for tax paid on input services can be adjusted only against the service tax paid (on output). But, multiplex operators are unable to get this benefit since they pay entertainment tax and VAT (and not service tax) on a chunk of their revenue. Once the GST comes in, this anomaly will be removed. According to Upen Shah, this could improve operating profit by 300-400 basis points.

Mixed signals

Within the pay television industry, while broadcasters will see an increase in their tax rate, distributors- DTH and cable operators- will get some tax relief. TV broadcasters will move from the existing 15 per cent service tax rate to 18 per cent GST. The impact of this may however be passed on to the consumer.

DTH companies currently pay 15 per cent service tax and about 8 per cent entertainment tax on an average (is much higher in some states) on their revenue. The move to 18 per cent GST will therefore bring an upside of 5 percentage points on the tax font. “This, we will partly share with the customer and partly retain ourselves,” says Jawahar Goel, MD, Dish TV. Apart from that, the benefit of input tax credit will also be made available. “We pay VAT on some locally purchased goods, which we then convert into service revenue. Currently, we don’t get input tax credit on the VAT paid by us on these goods, since our final output is a service. The GST will do away with this dispute between goods and services and input tax credit will be provided. There will also be less tax litigation,” says Jawahar Goel. Also, as a report from Motilal Oswal points out, DTH operators pay several duties including special additional duty (SAD) on their set top box imports. However, they do not receive input tax credit for the SAD paid. This will change under the GST regime.

While cable TV operators too pay service tax, they are charged a lower rate (or exempt) of entertainment tax compared to DTH operators in some states. Also, unlike DTH operators, not all cable operators have a pan India presence. So, depending on the rate of entertainment tax charged in the states where a cable operator offers services, the move to GST could mean higher or lower tax liability.

Taxing times?

Newspaper companies currently do not pay tax on their revenue. So, if the print industry gets covered under the GST, this will impact them negatively. There is though one point to note. Under the GST regime, newspaper companies will also be able to adjust the VAT paid on newsprint against the GST paid on their revenue. Currently, they do not get any input tax credit. This will partly compensate them for the negative impact of the GST to be paid on revenue. Newsprint cost accounts for about 35 per cent of a newspaper’s revenue.

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