Impact of GST Rates on the Entertainment Industry

Entertainment is a big part of our lives. Most of us who work 10-12 hour jobs through the entire week want to go out, watch movies or visit some new places to relax on our days off. In this article, we will discuss the impact of GST rates on the entertainment industry and whether or not it is becoming expensive under GST.

Latest updates

50th GST Council meeting   
In the 50th GST Council meeting held on 11th July 2023, the Council clarified that the supply of food and beverages in cinema halls is taxable as a restaurant service if they are supplied as a service independently of the cinema exhibition service. If clubbed together and the same satisfies the test of composite supply, then the entire supply will attract GST at the rate applicable to the service of exhibition of cinema, the principal supply.
Note: This decision will come into force once notified by the CBIC.

Under the VAT Regime

Currently, the entertainment tax is levied by states and the rates range from 0 to 110%, with an average of 30%.

A list of the entertainment tax generally charged by states:

Buying Food at these Places

Most of these entertainment places (movie halls, amusement parks etc.) usually give out contracts to private players to supply food. The service tax currently (pre-GST) is 15%, and the entertainment industry enjoys an abatement of 60% on service tax, i.e., only 40% of the 15% service tax has to be paid. So, the total tax under the VAT regime is :    

Impact of GST Rates

The table below shows the final rates that will apply to the entertainment industry post-July, 2017:

For End Consumers

Let us understand the impact of GST on the end consumer using movie halls as an example. In movie theaters (multiplexes), food and beverages are taxed at a VAT of 20.5% and an average of 30% tax is levied on tickets, depending on the state. Movie tickets will attract GST at 28%. As food and beverages fall under the supply of food/drinks in outdoor catering, they will attract 18%.

Thus, we see that the GST rates for the entertainment industry are lower than the VAT and Service Tax.  GST will have a mixed effect on the entertainment industry, depending on the states. For states with a high entertainment tax, GST will be beneficial as it will reduce the prices for the end consumers. However, GST will have a negative effect on states which already have a low entertainment tax.

As we see above, the GST impact on ticket prices will differ from state to state.

For Entertainment Industry Owners

Like the end consumers, even the entertainment industry will see a varied impact of GST implementation. Movie theaters and amusement parks may see either a positive or a negative impact depending on the state they are in.

Availability of ITC

ITC will now be available on the services component of activities like catering, renting of premises for movie halls, security costs which were not available under the pre-GST regime. So, the input GST paid when renting a premise can be adjusted with the output GST from selling tickets.

Thus, the tax burden on the owners of theaters, amusements parks etc. is set to reduce in the coming days.

Additional Tax by Municipalities

Municipal bodies have so far not had any share in entertainment taxes collected by states. However, there are reports that some states such as Madhya Pradesh, Rajasthan, and Gujarat which might ask their local bodies to charge entertainment tax. If local taxes become applicable, then the operating margins and profits, as calculated above, will be affected.

Conclusion

The impact of GST on the entertainment industry can be both positive and negative, depending on the state. Owners of movie halls, parks etc. stand to gain under GST thanks to the provision of input tax credit. However, the effect of any additional local taxes (if levied) needs to be seen.

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