Aimed at having a simpler and unified tax regime, Goods and Services Tax (GST) Constitutional Amendment Bill was passed in the Rajya Sabha. The tax reform, which will make India ‘One nation, one tax’ will simplify indirect tax and replace states taxes like central sales tax, service charges, VAT, sales tax, luxury tax etc into one tax. Once implemented, GST would bring in relief for the multiplexes owner as it will bring down entertainment tax and lower operational cost.
According to a brokerage house Motilal Oswal, GST will lower effective tax rate and will support margin expansion for some multiplex and media companies. It further added PVR and Inox Leisure will gain as GST implementation will see lead to a margin expansion of around 440 basis points (at 18 per cent GST) and around 200-300 basis points respectively.
Also, both the companies are set to gain with as GST as it will lower the operational cost and drive margin expansion. “Multiplexes currently largely operate through leased premises and incur significant cost on rentals and infrastructure, on which they pay service tax. In the absence of any significant service tax or excise liability on output, the service tax paid on input is not available for set off, and hence, expenses as cost. Under GST, post the subsuming of all taxes, the credit of taxes on rentals and infrastructure services will be available even against box office collections and F&B revenue,” it said.
Among the media companies, GST would impact Dish TV positively, while Zee Media and Sun TV are likely to be negatively affected. Dish TV will benefit from GST on lowering of effective tax rates, as both service tax and entertainment tax get subsumed in GST, and additional input tax credit on set top boxes. Motilal Oswal said, “Amongst direct-to-home (DTH) companies, Dish TV should gain the most as it will be able to retain the reduction in tax rates, which will favorably impact margins.”
Print companies are exempted from the levy of service tax on both ad and circulation revenues. However, if print ad/circulation income comes under the tax ambit, print companies will be adversely impacted, the brokerage house said.