In the run-up to the preparations for the rollout of Goods and Services Tax (GST), Tamil superstar Kamal Haasan predicted that the levy of 28 per cent tax would ruin regional cinema. On July 1, 2017, the GST, touted as the biggest tax reform of Independent India, came into effect with much fanfare, and three days later, nearly 1,000 cinema halls across Tamil Nadu have downed their shutters.
Under the old regime, tax on films in Tamil Nadu varied from 30 per cent in Chennai and Coimbatore, to 15-20 per cent in smaller towns and Panchayats. After the GST, the tax collected under the name of local body tax and entertainment tax would have been subsumed and replaced by 18 per cent (at tickets below Rs 100) and 28 per cent (at tickets of over Rs 100).
However, on June 30, hours before the gala event at the Central Hall of Parliament where the GST was officially launched, the Tamil Nadu government issued an order imposing 30 per cent local body tax on movie tickets. This tax is in addition to the GST, putting the effective tax in state at 48 per cent and 58 per cent, turning Tamil Nadu cinema from one of the lowest taxed industry to the highest.
Effect of GST on other regional film industry
Tamil film industry produced close to 300 films in 2016, and they were made tax-free in their home state. Telugu film industry, which produced over 250 films last year, also enjoyed lower tax rates in Andhra Pradesh at 20 per cent. Many films were also made tax-free, making movie tickets cheaper in the state. Similarly, Karnataka and Kerala also fell under lower entertainment tax bracket with a cap on cost of movie tickets.
The motive of successive governments in the southern states has been to promote regional cinema in their own strongholds as they find very little audience in the Hindi belt, except a few exceptions.
The GST will, however, automatically cause higher prices of tickets and will not distinguish between the language of the cinema and the state where it is being exhibited. As Haasan pointed out, “regional films should not be put on the same level as a Hollywood or Bollywood movie,” as the regional cinema does not have as much resources as Hollywood or as much audience. It is highly unfair to put Tamil or Telugu films as par with Hollywood or even Bollywood.
Tickets of Hollywood films are priced at higher rate all over the world as they are made at higher budgets. In comparison, the regional films are produced at a fraction of cost.
Southern states have also put cap on the price of tickets. Like in Karnataka, the cap is Rs 200, excluding taxes. Before the GST, ticket for Kannada films was Rs 203, with Rs 3 service tax and zero entertainment tax, while the maximum ticket price for non-Kannada films was Rs 264, including Rs 60 entertainment tax and Rs 4 service tax.
However, after the GST, the ticket prices will be uniform for all films, meaning for a Rs 200 ticket, the effective ticket price will be 258, irrespective of the language of the film. This will obviously put a burden on consumers and will affect the business of films. The same goes with other states.
Challenges for regional cinema
Regional cinema in Southern states as well as in Maharashtra, Gujarat, West Bengal and other non-Hindi speaking state face two major challenges -- funds and audience. Regional cinema has no dearth of funds but as the profit is scarce, the investment is also in that proportion. The profits are decided by the footfalls in cinemas and beyond the state of origin, the regional cinema finds very little audience. The audience beyond the state finds little connection with the culture and the language and that limits a film's reach.
Funds and audience are not only challenges for the regional cinema that also struggle with recognition beyond state borders. Despite some exceptional artists and their works, the accord that is given to Hindi cinema in India is not extended to regional cinema barring a few exceptions.
Why theatre owners in Tamil Nadu have closed shops?
Given the challenges that regional cinema faces, one would assume that the state governments would be willing to take an extra and give a helping hand. To be fair, some states have recognised the challenge and are working to minimise the burden on filmmakers. Andhra Pradesh and Kerala have removed levy on entertainment tax altogether. West Bengal Chief Minister Mamata Banerjee is believed to be working to ensure that 50 per cent of the GST payout goes back for the welfare and development of Bengali cinema.
The story in Tamil Nadu, however, is different. While the cap on ticket prices remain, the tax that theatre owners will bear will increase after the GST and the additional local body tax. For example, theatre owners will have to pay 18 per cent GST and 30 per cent local body tax from the Rs 100 that they would collect from the movie-goer, which will put the entire burden on them. While the exhibition of 10 films which were running across cinema halls in Tamil Nadu have been stopped, distributors are unlikely to buy films at the same price as they used to, ultimately affecting the producers.
While it made little sense to tax regional cinema at the rate of Hollywood or Bollywood, it makes even less sense to levy a 30 per cent local body tax in Tamil Nadu. While the GST almost ruined the regional cinema, in Tamil Nadu, the local body tax has put the final nail in the coffin for Tamil cinema.