The Budget may have made distributors and exhibitors happy with transfer of copyright and sale of movie tickets exempted from service tax, but producers are upset that talent services haven?t been exempted, which will push up production costs
With 2013 being the centenary of the Indian film industry, finance minister Pranab Mukherjee spent a few moments on the media and entertainment sector in his Budget speech. The opening up of venture capital for the media and entertainment sector will help it get investments. In fact, the film industry got a perfect centenary gift when he announced that copyright on recording of films under the negative list will be exempted from service tax; he also said there would be no service tax on movie tickets. These twin announcements made the distributor and exhibitor very happy, as the film industry had moved from pillar to post to get the exemption ever since it was first levied in Budget 2010, but there’s a twist in the tale in the Budget fine print.
In all the concept papers on negative list?two have been drafted?services provided by artists were exempted from service tax. So, actors, directors, technicians and so forth didn’t come under the purview of service tax. However, in Budget 2012 (notification 12/2012) the FM seeks to grant exemption only to performing artistes in folk or classical art forms of music, dance and theatre. There is no mention of film artistes, but if film artistes are kept outside the purview and taxed, it will increase the cost of production of films, contend producers.
Already, the chief financial officers of top production houses have met and, together with the Film Guild, will make a representation to the finance minister this week to sort this out.
Says Sanjeev Lamba, CEO, Reliance Entertainment, “The denial of exemption from service tax on all major costs of the film production in the proposed legislation shall result in increase in cost by at least 8-10%, and also no set off will be available to producers (since licensing of copyrights in cinematographic film is exempted). This will result in a direct impact on the net margin of producers. The Producers? Guild has already decided to take it up with the ministry.”
Utkarsh Sanghvi, senior manager, member firm of E&Y Global, feels production costs may even go up by 10-12% if an amendment is not brought about. Of a film’s budget, at least 30-40% is spent on actor fees and other costs like line producer, director, technicians’ fees. And since producers won’t be able to pass it on to the distributor or exhibitor, it will pinch them harder.
A top film producer says margins are thin and the industry is already grappling with a high entertainment tax and VAT, which varies from state to state from 20-60%.
There’s a reason why producers are moving swiftly to seek changes from the FM. The government levied a service tax in 2010 and by July when the circular was distributed, the film fraternity vehemently protested against the move. Top players filed writ petitions in Mumbai and Delhi, seeking a stay on the order, but the courts haven’t ruled yet on the issue. In the meantime, representatives of the film industry met finance ministry officials and the FM himself many times to convince him to change his mind, and the FM agreed to the exemption this Budget.
Nitin Sood, CFO, PVR Cinemas, says the exemption on ticket sales has come after several representations. ?It?s a welcome move because the Budget announcement in 2010 took everyone by surprise and we were getting into litigation mode. We were being taxed twice, first at the state level and then central.? Sood says the only solution is GST. ?We are lobbying on that, but we don?t know how long we have to wait for that reform to come.?
The government had issued its first concept paper on negative list in service tax in August 2011. The first draft saw temporary transfer of intellectual property rights and right to enter any premise as a deemed service, and that they were liable to be taxed under the new negative list regime. The Film and Television Producers? Guild of India Ltd (Film Guild), Motion Pictures and Distributors? Association of India (MPA) and Film Federation of India (FFI) protested that with the industry already suffering from a very high entertainment tax regime, this was a classic case of double taxation.
In fact, many in the industry are upset that the FM hasn’t clarified the GST roadmap in this Budget. Adopting GST and subsuming the high entertainment and service tax will promote growth of the film industry, say experts. The R9,300 crore film industry releases 1,000 films every year in many languages, and grew by 11.5% in 2011 over 2010. ? When we read the fineprint we realised that though service tax has been removed at the output level (distribution, exhibition), all input items which were not taxed last year will now attract a steep 12% service tax. The entire cost burden is on the producer,? says a top Mumbai producer. The film industry even observed a day’s token strike against the service tax on February 23.
According to industry insiders, if the cost of production goes up, and if producers can’t pass it on to the distributor or exhibitor, they may be forced to cut down on the number of films produced, thus impacting the whole industry.
The film industry welcomed the finance minister’s exemptions on distribution and exhibition because it had been a long battle for the film industry. But now producers are seeking an amendment so that their costs don’t go up. They might seek a larger share of the revenue if the FM doesn’t sort this out. The last time exhibitors and producers and distributors fell out over revenue sharing in 2009, there was a two-month shutdown affecting the entire industry.