Uniform Entertainment Tax Rates

1. Uniform Entertainment Tax Rates The Multiplex Association of India

2. Executive Summary • Industry background • Entertainment industry outperformed all other industries in 2001, emerging as one of the fastest growing sectors with 30% growth rate • Film revenues constitute close to 50% of the total entertainment industry, of which theatrical exhibition constitutes around 80% of film revenues • Most other entertainment components, like cable television, music, etc are largely film dependant • Problems faced by Indian film exhibition industry • Prohibitively high e-tax rates • Disparity across States in e-tax rates

3. Prohibitively high e-tax rates

4. Disparity across States in e-tax rates

5. Consequences • Prohibitively high tax rate leads to business being unviable, causing many existing cinemas to close down • Absence of adequate profits to plough back leads to run-down cinema theaters with poor ambience and facilities and no technological upgradation • High tax rates reportedly leads to under-reporting of collections and leakages of revenue • Unviability caused by high tax rates discourages new investments in film exhibition sector • Poor tax compliance practices leads to corporate players not entering the business, depriving it of professional management skills

6. What needs to be done E-tax rates need to be: • brought down to more reasonable levels • standardized across States

7. What is a reasonable tax level? • Most manufactured goods in India pay a 16% excise duty and a 4% sales tax • Services in India are taxed at 5% • Average e-tax rate in the region is 10% - 15% • Why should e-tax on cinema exhibition be higher than 24%???

8. Advantages of reasonable and uniform e-tax rates • For cinema exhibition business • Business becomes viable leading to cinemas theatres continuing to remain in operations • More profits will help renovation / upgradation • This, in turn, will lead to higher occupancies, further boosting viability • For new investments in exhibition sector • Improved viability will bring in more investment in the business • Corporate interest will bring in professional management skills • For film production industry • More outlets for exhibition, particularly regional / small budget films • Longer run for commercial films • Overall improved viability leading to more films being produced • For society • More entertainment options • Better quality entertainment options • Areas around cinema developments become attractive destinations, boosting general commercial activity and infrastructure development • Increased employment opportunities in film exhibition, and eventually film production, sectors • For government • More cinemas * higher occupancies = higher box office collections = higher tax collections, in the long term • Higher sales tax, property tax and stamp duty collections because of development around cinemas

9. In Summary • In the long term, a reasonable rate of tax almost always leads to higher tax collections due to better compliance, and new investments in the sector • It is therefore proposed that the process of rationalization of e-tax rates be carried out and a uniform entertainment tax rate of 24% be made applicable to all states.