FICCI wants ET to be capped at 16%

Entertainment taxes should be capped to 16 per cent across the country and restrictions on number of film shows and freedom to operate any number of shows between 0800 hrs and 0130 hrs should be removed, according to the Federation of Indian Chambers of Commerce and Industry.

This is part of a 10-point revival package suggested by FICCI to infuse a new lease of life to the multiplex industry, which contributes 70% of all film revenues.

At the outset, FICCI has said in its report that the archaic laws governing regulation of cinema and a highly burdensome tax regime are posing a serious challenge to the multiplex industry, leading to closure of cinema theatres and shutting out investment in multiplexes.

The suggestions include standardization and modernization of cinema regulations under a Central Uniform Cinema Code to be applicable across the country, and simplification and standardization of all laws governing the sector.

FICCI wants removal of all pricing restrictions, mitigation of concerns of adverse revenue impact on state finances, and tax reduction to be done in phases over next three years. It says taxes paid on costs incurred should be allowed to be set off against taxes collected on revenues, and licensing should be granted under a ?single-window? clearance concept.

All States should specifically permit computerized ticketing, and digital distribution and exhibition should be specifically permitted in the proposed new Cinema Code.

In a detailed assessment of the problems dogging the multiplex industry, FICCI has pointed out that India is amongst the highly ?under-screened? countries in the world. It has only about 12 screens per million in comparison to the United States which has about 117 screens per million. There is thus an estimated shortfall of an estimated 40,000 screens in the country.

The report has listed out some legal and regulatory issues and some fiscal concerns as major areas of concern for the multiplex industry.

Indicating that Cinema should be in the Concurrent List of the Indian Constitution, FICCI has pointed out that with cinema exhibition being in the State List, each State has its own ?Cinema Regulation Act?, ?Cinema Regulation Rules? and ?Entertainment Duty Act?. This results in multiplicity, non-standardization, obsolescence, and subjectivity.

Most States prescribe cinema building criteria through ?Cinema Regulations? and also prescribe cinema building criteria in local development bye-laws .These criteria include location, FSI, ground coverage, seat layouts, viewing angles, safety, parking, etc. These criteria are different in different States, making it difficult for a national chain to create a uniform design across the country.

Furthermore, there is also contradiction between State regulations and local municipal bye-laws as well, creating confusion on what to follow. In most States, Cinema Licenses are issued by the Police Commissionerate (in non-corporation areas, by District Magistrates). The process of obtaining a Cinema License is very tedious, at times involving more than 40 different sub-permissions. Many of these sub-permissions are to be obtained from departments or authorities that do not understand the concept of a modern world-class multiplex. Computerized ticketing is not allowed in many States, and many State Governments do not allow digital exhibition since this is not provided for in Cinema Regulations.

Digital exhibition could lead to effective curbing of piracy (due to encryption technologies as well as simultaneous releases) and improve logistics and economics of distribution of cinema content. Digital distribution may be through VSAT transmission or through disks

Listing fiscal issues, FICCI says that despite India being the highest film producer in the world with the highest number of film admissions in the world, it is the highest ?entertainment taxed? country in the world. Average entertainment tax rates in the neighborhood are between 10% and 15%. Most other industries in India pay a 16% excise duty and services pay a 15% service tax, but cinemas pay 40 to 100 per cent entertainment tax on their ticket revenues; 12.5% sales tax / VAT on their F&B revenues; 12.36% service tax on their advertising revenues; 12.5% VAT tax on their distributor payouts (disputed); 12.36% service tax on their property rentals; and has a plethora of other minor taxes like show tax, INR, property tax, advertising tax, etc

Furthermore, if there is any profit left after all this, a 35 per cent income tax is levied on that. Cinemas are not allowed to set-off taxes paid on their costs, against taxes paid against their revenues.

Seeking government intervention for giving a fillip to the sector, FICCI has said business becomes viable leading to cinemas theatres continuing to remain in operations. More profits will help renovation/upgradation which in turn will lead to higher occupancies, further boosting viability. Improved viability will bring in more investment in the business and corporate interest will bring in transparency and professional management skills.

There will also be more outlets for exhibition, particularly regional/small budget films; longer run for commercial films; overall improved viability leading to more films being produced; and more and better quality entertainment options. The areas around cinema developments become attractive destinations, boosting general commercial activity and infrastructure development.

This will lead to increased employment opportunities in film exhibition, and eventually film production sectors.

The report concludes that the government stands to benefit as it will get higher tax collections. More cinemas and higher occupancies would lead to higher box office collections which in turn will mean higher tax collections, in the long term higher sales tax, property tax and stamp duty collections because of development around cinemas.