GST and its Implications

by Koka Tarini Siddhartha 

Two of India’s most radical financial changes have taken place within less than a year. One was a surprise, while the other, like most things in India, took seventeen years to come into force. Questions about the Goods and Services Tax (GST), its effects, and its implementation, have been doing the rounds since its official launch on July 1, 2017. In this post, we assess the impact of GST on the entertainment industry.

What is GST and why does it matter?

There are two broad categories of tax — direct and indirect tax. Direct tax applies to income, while indirect tax covers goods and services. GST was proposed to create a more structured tax system with uniform tax rates across the country.

Prior to GST, there were multiple taxes and cesses levied on goods and services. One of the most common remarks people make (us included) is how the taxes at a restaurant seem to add up to more than the meal! Service tax, value added tax (VAT), and Swachh Bharat tax (to name a few) are now covered under one head, GST.

There are four tax slabs (5%, 12%, 18% and 28%) in the new tax regime and different taxes are applied depending on the nature of the goods/services. The 5% slab covers essential household products, the 12% and 18% slabs apply to fast-moving consumer goods/services, and the 28% slab extends to luxury goods, and “sin goods” like alcohol and tobacco.

Apart from being a single tax and making our lives less complicated, GST is very significant as it is a step towards India being in sync with other world economies. It is a multi-stage, input tax credit, and destination-based tax, which basically is a win-win-win situation.

To paraphrase, there is a distribution of tax at every stage of value addition (from raw material to consumer sale). For example, if the total tax payable by the producer of raw material (20), manufacturer (10), retailer (10), and consumer (10) is 50, the tax payable will be distributed at each level, which in turn reduces the final burden on the consumer.

Is GST good or bad for the entertainment sector?

GST has a mixed impact on live performances, movie tickets, food and beverages (F&B), art, and music. As is common with any change, there are some who remain unperturbed, whilst others are busy filing petitions on and the like. Let’s look at each individual sector and the corresponding tax rates.

Movies and Popcorn: Depending on each state, GST may have a positive or negative effect. In states like Maharashtra and Uttar Pradesh, GST will reduce the price of tickets, while states like Rajasthan and Jammu & Kashmir which never imposed entertainment tax will hike ticket prices.

Taking into account the average of previously applicable taxes (service tax and VAT), GST reduces tax payable by 2% (from 30% to 28%). The only hiccup is that the central government has given every state the power to impose additional local entertainment taxes, which will make watching a movie as expensive as, or even more expensive than before GST. The entire purpose behind GST is lost by giving state municipalities and other local bodies the freedom to impose this secondary tax. However, treating yourself to some caramel popcorn at the theatre is now cheaper (F&B tax has reduced from 20% to 18%).

Live Shows and Musical Instruments: GST payable on live performances such as music performances, concerts, circuses, theatre, dance and drama is 18% (a 3% increase), but movie festivals, amusement parks, races, casinos, and other events considered “luxurious” will be taxed at 28%.

Musical instruments are also taxed at 28% — a huge impediment to musicians’ earnings as they have to spend more to perform, and their performances (considered to be services) are also taxed. Even if ‘Western’ instruments like guitars and violins are manufactured in India, they are still taxed at 28%, while handcrafted indigenous musical instruments are tax-free.

Art and Textile: The previously tax-free art industry is currently under the 12% GST slab. Paintings, drawings, original engravings, prints, and lithographs are a few of the taxable art. Similar to the music industry, many artists are disgruntled by this tax imposition which affects the already struggling art market where only 5% of an artist’s work is sold.

The tax rate for apparel and the textile industry is higher with the advent of GST, although the overall effect on the industry is positive. There are varying rates for fibres like silk, cotton, man-made yarn, and apparel ranging from 5% to 18%. Despite the long-term benefit of GST, the imposition of this tax has been met with opposition and protests, to remove textile from the claws of GST.

Casual Taxable Persons: Professionals who occasionally manufacture goods or provide a service without a fixed place of business can register themselves as ‘casual taxable persons’. These professionals could be architects, fashion designers, or stand-up comedians and the registration is valid for 90–180 days. In such cases, tax is paid in advance and credit can be claimed later depending on the person’s turnover.

Overall, GST has had a diverse and confused reception. Artists and musicians are apprehensive as it restricts their livelihood by increasing costs, broadcasting companies are grumbling because they need to register in every state and not just once with the central government, and going out has become more expensive.

At the same time, GST has introduced a system of single taxation, shifted things from the unorganized to organized sector, and provided increased transparency and accountability at every stage. While GST sounds great in theory, its impact is still uncertain as most people are still unaware of its nitty-gritties and implementation.

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