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What does the passing of the GST bill mean for the media & entertainment industry?

05-August-2016
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What does the passing of the GST bill mean for the media & entertainment industry?

The passing  of the GST has been proclaimed as a historic day for India. But what does the passing of this one bill mean and is it as important as it seems to be?

For one, India Inc. seems to be, on the whole, happy, with the clearance of the GST. The main reason is obviously that it brings the entire country under one, single, uniform, tax policy.

Saloni Roy, Senior Director at Deloitte, is of the opinion that one positive will be that businesses will get more tax credit which was not always possible under the old tax regime. She gives the example of VAT (Value Added Tax), which is in the range of 4-15 per cent.

Speaking about the media and entertainment industry in particular she said, “Service providers like broadcasters, production houses, etc. might have to pay marginally higher (in the GST regime) but the positive is that they will be able to get credit on goods procured.”

However, she also cautioned that under the GST regime it might become a bit difficult for media companies as there might not be any central registration. But this, like many other things with this recently passed bill is still something that is subject to “reading the fine print” said analysts.

Utkarsh Sanghvi, Tax Partner, EY, feels that for the media and entertainment industry, any advantages that the GST would bring would be conditional to how local civic bodies think about entertainment taxes. “We do not know what the local body (civic) will charge (as entertainment tax). We feel most of the municipal corporations might not charge this (extra tax),” he said.

One key issue is obviously that the rate of GST has still to be decided.

Roy felt that it was a decision that would be best made by the appointed body which would have representatives of the states as well as the central government. “This is a very complex issue which depends on current revenues, the expectations from GST, etc. This is something that needs to be decided by the appointed council,” said Roy.

“A rate of around 18 per cent should not be inflationary. Anything above 20 per cent will not be good for the economy,” opined Sanghvi.

Speaking about the tax rate, Rajeev Dimri, Leader (Indirect Tax) BMR & Associates LLP, stated that, “RNR merely ascribes to the tax rate which ensures similar revenue to government under the newly implemented tax regime as collected under the existing structure.  Therefore, the report recommends three category of applicable GST rates i.e. standard rate, lower rate for certain goods and demerit rate.  As per the report, the preferred standard GST rate should fall in the range of 15 to 15.5 percent with a lower rate of 12 per cent on certain goods.  The report also recommends a hefty rate of 40 percent on demerit goods like luxury cars, tobacco, aerated beverages etc.”

 According to analysts we spoke with, the actual decision obviously lies with the appointed council, which will see the state governments have a big say in the matter.

“It is also relevant to take note of the fact that notwithstanding a constitutional assurance for revenue compensation for the first five years, states (which will hold majority membership in GST council) continue to display resistance to an 18 per cent RNR rate. Given the this factual matrix, arriving at a consensus on GST RNR is likely to be an intricate process and must be closely watched by the industry to get more clarity for reviewing their pricing and working capital impact,” opined Dimri.

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Prior to joining Madison PR in 2012 Chaudhary was Group President Corporate Communications at Reliance Industries Limited.