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Not a Simple Tax: Be Ready for Multiple Taxes Under the GST Regime

The Quint |

04 July 2017

Why are the movie theatres across Tamil Nadu shut? Is the entertainment tax not part of the Goods and Services Tax (GST) and therefore, rates specified? Why are the theatre owners then complaining of double taxation?

Some of the answers can be found in the GST council’s decisions. While the entertainment tax is part of the GST with two specific rates – 18 and 28 per cent – there is a provision which says “local bodies are free to levy their charges and there is no cap on the quantum of additional levy,” says Pratik Jain, partner and leader, PwC.

According to a BloombergQuint report, the average tax incidence on movie tickets across the country was 20 per cent before 1 July. It ranged from 20 percent in Madhya Pradesh to as high as 60 percent in Uttar Pradesh.

With the GST council fixing two rates – 18 percent for tickets priced below Rs 100 and 28 percent for tickets priced higher – there was cheer all around, expecting a fall in the prices of cinema tickets. However, with the introduction of additional levy by the local bodies, the cheer has proved to be short-lived.

The theatre owners in Tamil Nadu are so upset that they have gone on an indefinite strike. They are protesting against the imposition of 30 percent entertainment tax in addition to 28 percent GST.

Not just movie tickets, there is a likelihood of television-viewing becoming expensive. According to reports, the TV services that are likely to be charged are cable and direct to home (DTH).

In the pre-GST regime, DTH and cable services used to attract a combined tax burden of nearly 25 to 45 percent. Under the GST regime, the TV cable and DTH services will be taxed at 18 percent – significantly lower.

So naturally, there was hope that TV viewing would be economical in the GST regime. However, this is unlikely to be the case if local bodies start imposing an additional levy as they have on movie theatres. Reports indicate that this is the case.

While states like Maharashtra, Madhya Pradesh, Gujarat, Rajasthan and Tamil Nadu have already indicated the imposition of additional entertainment levy by local bodies (panchayats, district councils, municipalities and municipal corporations), other states are likely to follow suit.

Experts are of the view that apprehending shortfall in revenue, states are likely to use local bodies to garner additional resources.

Since many taxes levied by the local bodies have been kept out of the purview of the GST, states are likely to use this route frequently and for more services.

"What this means is additional accounting problems. You pay one set of entertainment taxes under the GST and another to the local bodies. There is bound to be confusion"

 Manish Mishra, Partner (indirect tax), BDO India LLP.

As it is, there are a range of indirect taxes which will continue despite the arrival of the much touted ‘one tax, one nation’ regime. While under construction properties come under the purview of the GST, completed properties will be outside its purview since stamp duty is not part of the GST. Similarly, states will continue to charge electricity cess and property tax will have to be deposited with the local bodies.

What is more, while commercial vehicles are not required to pay octroi anymore at state borders, they will continue to pay entry tax if a vehicle enters the boundary of a municipal body.

In other words, your Uber or Ola ride from, let us say, Delhi to Noida will continue to attract additional charge of nearly Rs 100 because of the transition from one municipal body to another.

Some of the other taxes that will continue despite the onset of the GST regime are road tax, toll tax and additional excise duty on tobacco products whenever they are imposed.