Does a film’s tax-free status benefit consumers and theatre owners?
Premium- Benefits for tax-exempt movies have waned since the goods and services tax was introduced in 2017
The government’s decision to make The Kashmir Files and Samrat Prithviraj tax-free has put the spotlight back on its benefits. Though the initiative is aimed at lowering ticket prices to ensure more and more people can watch the film, and theatre owners earn a higher revenue, the benefits are limited and tax-free films do not really enjoy a zero-tax status.
In fact, benefits for tax-exempt movies have waned since the goods and services tax was introduced in 2017. While earlier tax-free movies enjoyed a waiver of the entertainment tax, since 2017, central GST of 9% is still levied on ticket sales and only the state’s share of tax is exempted. However, there’s a catch, while ticket prices may be cheaper for the consumer, theatre owners still have to pay tax on ticket sales, and can only claim a refund later.
And, cinema owners claim the refund process takes several months to a year. “Actually, tax-free status accorded to a film is not really good news for theatres. It simply means they will have to reduce ticket prices, but continue to pay tax to the government and claim the deficit later. It’s a complete mess of accounts," said Atul Mohan, editor of trade magazine Complete Cinema.
Earlier, tax free status would help enhance the shelf life of a film up to 25 weeks in theatres, but that is hardly the case now, and even the biggest hits are taken off screens after eight to 10 weeks, Mohan added.
Rajendar Singh Jyala, chief programming officer, INOX Leisure Ltd, agreed. “Waiver on taxes actually makes for a very tedious process for theatre owners who cannot charge the audience but have to pay tax from their own pockets. In pre-GST times, certain states like Maharashtra charged 45% entertainment tax, waiver on which actually made a difference. Now with the 18% slab, the reduction is barely lucrative. Besides, it isn’t easy to get refunds," he added.
In fact, the sentiments were echoed by a host of industry insiders. “The move creates confusion for theatre owners on one hand, and doesn’t take into account that ticket prices are unusually high on weekends, when maximum footfalls are expected, and when more people could have ideally been lured to cinemas, with the promise of a tax cut," said a film producer, on condition of anonymity. “The idea is to help films with government backing but now it’s just turned into a marketing tool for films that the government wants to push," he added.
According to him, earlier, filmmakers would make presentations before the government to grant them tax-free status for the social messaging or a film that received international acclaim. “The process would take time and the film would be granted tax free status after maybe six to seven weeks in cinemas. Now it is from day one, or even before release," he said.
Interestingly, consumers, too, do not benefit as cinemas often arbitrarily hike ticket prices if there is good buzz around a film, defeating the purpose of lowering taxes.
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Mohan said the benefits of tax cuts do not trickle down to audiences since tickets rates are not fixed, and are changed according to the whims of cinema operators. “If prices are hiked, audiences are unlikely to be excited by a tax cut for the film," he added.
Independent exhibitor Vishek Chauhan said tax cuts do not benefit if the film fails to find audience acceptance. “We can try and pass on the benefits to customers, but they will not come even if the film is screened for free (if it doesn’t excite them enough). It’s not just about the money here, but the time and effort it takes to visit the cinema nowadays," Chauhan added.