How GST affects kollywood
The Goods and Services Tax, set to be implemented on July 1, looks set to affect the way cinema is made
Kollywood is bracing for the implementation of the Goods and Services Tax on July 1. For almost ten years now, there has been a cap on ticket prices in Tamil Nadu. The most you have to pay for a ticket in the state is Rs. 120. Of this, Rs.1 would go for maintenance, 83.30 is the entry fee, and 35.7 is the tax.
National Award-winning critic Dhananjayan wants a return to the way things were before 2007, when the cap on ticket prices was first implemented. “Before that, theatres could decide ticket prices for the first two weeks of a film’s release. Take a movie like Baahubali for which tickets in Andhra Pradesh were sold for Rs. 300. People still queued up. A PVR advertisement showed that they had sold close to 60 lakh tickets amounting to Rs. 140 crore. The average price works out to around Rs. 233. People are already paying flexi prices for diesel and petrol, and they will do it for theatre tickets too.”
Producer SR Prabhu agrees partially. He says, “Flexi-ticket pricing would be good, but it is not so much about the rising prices as it is about regulating the current prices. For a decade now, minimum ticket prices have been fixed at less than Rs. 10. We need a regulator to oversee ticket sales. This would bring in transparency, which, in turn, will make technicians agree to get their salaries towards the end of a film’s production.”
Madhavan, who heads finance at SPI Cinemas, can’t see the company being too perturbed by the implementation of GST. “In the short term, we will take a hit on the EBITDA (Earnings before interest, tax, depreciation and amortization). Also, we will be taking a hit on the food and beverage collections, as eighty percent of the revenue comes over the counter. Tax on a drink of Pepsi would go up to 40 percent. Popcorn, interestingly, doesn’t even get a mention in any of the tax slabs, and we are awaiting further clarity.”
The South Indian Film Chamber of Commerce, meanwhile, expressed outrage that cinema has been placed under the ‘sinful’ bracket, and taxed 28 percent, along with gambling and horse racing. Kamal Haasan was particularly vocal when he said, “Regional cinema has bagged most awards for the country. You cannot bring a monoculture in a diverse country like India.”
SR Prabhu agrees, “The bigger issue here is of the taxes we will have to pay on the advances and other agreements we make.” In other words, when a producer or a distributor deposits his money in the GST account, this credit could be subsumed or offset only with another GST paid under this account towards that particular producer or a distributor. The credit amount will not be refunded and this could result in many producers and distributors vanishing after a disastrous film or two.
But SPI Cinemas’ Madhavan thinks GST will be a problem for the industry only in the short term. “But once it is rolled out to a bigger market, there will be some course correction by the time the budget comes around. Over a couple of years, GST may well be a boon for the exhibitors.”
In fact, The Tamil Nadu Theater Exhibitors Association asked for the increase of maintanence charges from Rs.1 to Rs. 5. But SR Prabhu of the Producers Council doesn’t want this. “It makes no sense. Not all theatres invest equally in maintenance. They want this to cope with the diminishing audiences, on account of piracy. The other problem here is that for our population, we need at least 5,000 theatres. We have only 1,000. This could be a reason for piracy itself. We can’t build theatres fast as the approval process is archaic.”
The cable television and direct to home services will now begin to be taxed at 18 percent, which is lesser than the 10-30% entertainment tax they were paying in addition to the 15 percent service tax. Given the increasing penetration of video on demand services like Netflix, Hotstar, and Amazon Prime, you have to wonder if traditional cinema will be forced to look in this direction.
Dhananjayan doesn’t think so. “Look at two recent films, Ammani and Metro. They were highly successful in the VoD space, but still needed a theatrical release. How many unreleased Netflix specials do people even care about? The Indian audience watches films, only if they are released.” SR Prabhu also agrees that a theatrical experience is no substitute for VoD services.
Cannes recently had to apologise to its audience when audiences booed a Netflix special, Okja. The reason was that the streaming giant had no intention of releasing them in theatres when in fact French law dictates that films be screened first on the big screens.
With few weeks to go before GST comes into affect, the effect on the industry remains to be seen. But with piracy on the rise and internet becoming more affordable every day, it’s easy to see that exclusive film content could soon be created for VoD services.