GST: Good, Sad,Terrific?

03 Jul,2017

 

By Indrani Sen

 

Today is the third day after the introduction of the new tax regime under “Goods & Services Tax”. From the various articles and interviews I have read so far on the subject, it appears that our industry experts agree the short-term hiccups created by GST will be cured in the long run. They are hopeful that GST will eventually contribute to additional advertising revenue and growth of CGPA of the Media & Entertainment (M& E) Industry.

 

Vanitha Kohli Khanderkar has done an excellent analysis which appeared on June 28, three days before D-Day http://www.rediff.com/business/report/gst-how-will-gst-impact-indias-media-and-entertainment-industry/20170628.htm. Khanderkar pointed out how GST will impact Indian M&E Industry would depend on three issues. First, the segment of the industry (film, TV, Print, online or integrated), second, its operation in the value chain (content production, distribution or retail) and the structure and business dynamics of the operation and third, its ability to manage the complexities involved in implementing the GST.

 

The rate of GST will vary by industry segments and within the segment by the size/ type of the components which are to be taxed. For example, while movie halls/ multiplexes will pay 28% GST, Cable and DTH operators will pay 18% GST. However, movie tickets below Rs 100 (only 5% of the total box office collections) will attract 18% GST, while tickets above Rs. 100 (95% of the box-office collection) will attract 28% GST. Within the entertainment sector GST will be 18% for circus, theatre, drama, Indian classical dance, etc. and 28% for amusement parks, casino, race, any sporting events like IPL, etc.

 

The introduction of GST will abolish the current entertainment tax which varies from state to state. Whether movie-goers will benefit from GST will depend on if the current entertainment tax in their state is higher or lower than the proposed GST. Khanderkar mentioned in her above article “An analysis of 20 states and union territories by the Multiplex Association of India shows that a 28 per cent GST on tickets will have a negative impact in 12 states, neutral in one and positive in 7.”

 

Mint carried an article on May 25, 2017 warning about entertainment becoming more expensive due to additional local taxes levied by local bodies (municipal corporations, municipalities, panchayats, local and district councils) http://www.livemint.com/Consumer/UbDxhzE60hghZVX3VWPUJP/GST-effect-Additional-local-taxes-to-make-entertainment-exp.html. The article reported “For instance, a bill amending the entertainment tax law has already been introduced in Maharashtra legislative assembly to replace state entertainment tax with the local body entertainment tax. Madhya Pradesh, Gujarat and Rajasthan are likely to follow suit.” Apart from taxing the cinema halls, this local tax will be levied on cable and direct-to-home (DTH) operators.

 

The effect of GST will be sad for the end-consumerwho will end up paying more for movie viewing in cinema halls as well as viewing TV at home. On the other hand, the effect will be good for the film and TV producers as they will be allowed to set off the GST on revenues against that in their input costs which was not possible with VAT and service tax. This may result in attractive offers for viewing movie/ TV content on OTT platforms and accelerate their growth.

 

Digitalisation of TV has solved the problem of undeclared revenues by the cable operators only partially. GST, which will require the cable operators and the MSOs to account simultaneously for their output and input, is expected to put pressure on them to declare their actual revenues and pay taxes on the same. The indirect effect of GST can be terrific for TV channels as they may get a sudden windfall in their subscription revenue.

 

Print, which enjoyed a tax holiday for long, has been brought under GST regime. The GST on newsprint has gone up to 5% from earlier 3% taxation. Selling of space for ads in print and services by way of job work in relation to printing of newspaper, both has been notified with 5% GST. Circulation stays under 0% taxation. The large newspapers are confident that they will be able to set off the tax on newsprint against the tax on advertising, but for the small and medium newspapers the burden of GST may be difficult to bear. The Finance Ministry is yet to release the details of GST related to print segment.

 

Under the GST regime, the media owners(newspapers, TV, radio, etc.) as well as the advertising and media agencies have to register in each of the states where they have their operations against the earlier system where only central registration was required. The GST returns also have to be submitted to both central and state authorities. Whether these multiple registrations will impact the transfer of services within the offices of the same company and affect the profitability of the companyis not yet very clear with the entire industry in a “Learning GST” mode.

 

The current service tax of 15% on advertising expenditure will be replaced by 18% GST. The 3% hike in taxation on advertising may see some reduction in advertising budgets as most advertisers are unlikely to increase their budgets mid-term. However, under the GST model,expenses incurred on advertising will be available for input credit on taxes paid on advertisements, so it is expected that the advertising budgets will bounce back to the planned level within a few months.

 

The Pitch Madison Advertising Outlook 2017 predicted a 14% growth rate in AdEx during the period May to October 2017, but it appears now that the growth rate may be marginally reduced due to implementation on GST from July 1. However, our industry experts feel the new tax regime will be good for the media and advertising industry in the long run. They argue that advertisers, who will benefit from GST, will plough back part of their tax savings to advertising and AdEx will see an accelerated growth by next fiscal year.

 

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2 responses to “GST: Good, Sad,Terrific?”

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