The proposed indirect tax regime of goods and services tax (GST) would subsume entertainment tax levied by the state governments, according to a consensus reached between the Centre and states. However, such taxes levied by urban local bodies in some states might not come under the GST ambit.
The inclusion of entertainment tax by states in the GST is something the entertainment industry would be happy with. The industry has been pitching for inclusion of the entertainment taxes into the GST regime to create a common tax rate in all states and also reduce the tax burden, on account of the input tax credit to be available in GST system. ?The draft legislation prepared by the finance ministry and vetted by the law ministry states that the entertainment tax, if levied by the state government, would be subsumed, but if it is levied by the municipal body then it would be out,? a finance ministry official told FE. The states, however, were not keen on subsuming entertainment tax in the GST but later arrived at a consensus with the finance ministry, the official said.
Entertainment tax varies from 15-20% in most states and is levied by state governments except in Maharashtra and Uttar Pradesh where the local bodies also levy a tax.
Experts feel that the move to subsume the entertainment tax would be a good attempt for the industry with reduced tax rates hoped in GST while the local bodies levy route could be abused.
?This is a good thing as the overall tax rates may come down but the avenue of local bodies introducing a levy after this may be abused. There could be restriction on the local bodies to charge higher levies or introduce levies in future as a way out,? Ernst & Young Tax partner Uday Piprikar told FE.
Entertainment tax is paid by the entertainment industry for large-scale shows, private festivals that are sponsored, movie tickets, video game arcades, and amusement parks among others. Entertainment activities include commercial movie theater shows, games, amusement parks, exhibitions, celebrity stage shows, any kind of sports such as horse racing and exhibitions. One of the highest revenue earning sectors from tax in entertainment industry is cinema with the entry tickets to any cinematographic exhibitions have the entertainment tax included in it, which is 25-30% .
About 120 countries have adopted a GST levy on purchase of cinema tickets. Although in the final draft for GST goods like alcohol, petroleum products and natural gas have been kept out of the GST ambit, the entertainment industry has a lot of hopes with the GST regime that is scheduled to be introduced from April 2011 as the new regime would bring one tax rate for all states and also reduce the tax burden on the taxpayer (industry) and the consumer.