GST will have a detrimental impact on watching films in cinemas, writes PVR's Ajay Bijli
The GST was a great opportunity to take the film industry - the staple and most innocuous form of entrainment of the Indian masses - to another level. In the very near term itself, we would have come at par if not better than the best in the world, both in quality and quantity. It was an opportunity to scale up our domestic box office, which is at present a dismal size compared to those in the US, Chinese and even smaller markets. Through GST, we could have screens in every nook and corner of the country. And, why can't our movies do global box office collections like the international movies?
Let me explain why I feel a perfect platform that was set for an exponential growth in the sector has now got adversely impacted.
I have been in the business of running cinemas for over 27 years now and have experienced from very close quarters the dynamics of the film industry in our country.
For several years, the entertainment tax regime in India has been disproportionately high, ranging from 20 per cent to as much as 60 per cent. In addition, almost all the states also capped ticket prices. As a result, there was hardly any incentive for the already fragmented cinema halls to improve their offerings. The problem surmounted further when the video boom started in the mid-1980s and all of a sudden, hundreds of cinemas started closing down due to non-viability.
Customers who still had a huge appetite to watch films, reduced their visits to the cinemas due to the novelty factor of watching movies on video. It didn’t help that cinemas had stopped investing in upgrading their infrastructure due to the reasons I cited earlier. The cinema owners were finding it difficult to keep the ship afloat in this scenario.
However two things, constant and unique to India, still remained extremely encouraging; two critical factors that are imperative for the industry to succeed - an abundant supply of films and an equally matching demand by the consumers. The film industry was still churning out the highest number of movies in the world, and on the demand side people still had an insatiable appetite to go and watch movies. The missing link was the conduit that connected the two - a retail infrastructure that was clean, hygienic and up-to-date in technology.
The exhibition sector needed a boost as the revival of cinemas was important to resuscitate the industry. For this to happen, taxes had to be rationalised, land exclusively for cinema had to be provided and ticketing had to be decontrolled. These could be done only by the third stakeholder in the business - the government.
Since 1990, various cinema associations made representations to their respective state administrators. They requested for the decontrol of ticket prices - partial or full, to reduce or exempt entertainment tax (which was different in every state) and to tender or auction land that were demarcated for the cinema industry. It was important that the land wasn’t meant for any general commercial use as these could be grabbed by real estate players and cinema operators stood no chance to compete against them.
Various state governments understood the issue and the industry tasted some success. One big concern that Delhi had was over the transparency at the box office where tickets are sold. It was also argued by some old stalwarts in the industry that high tax rate was due to manual ticketing systems. As a consequence in 1995, we got permission to build the first multiplex with updated cinema building bye-laws and we introduced computerised ticketing system that ensured transparency for all stakeholders - producers, exhibitors, state exchequer and consumers.
This was accompanied by partial decontrol in ticket prices and some reduction in entertainment tax at the state level. The first multiplex opened in 1997, and it was a huge success.
Everyone benefited. The consumer now had a world-class facility to experience his favorite passion, the entertainment tax collections increased despite lowering of tax rates, the box office revenues increased and the adjacent real estate became prime. Seeing this, other state governments started giving tax exemptions - although for a limited period - and some more breathers to boost the sector.
The next two decades saw some growth in the sector. But given our population and the appetite for movies, the growth rate was nothing compared to those in the US and China. Still, now we were chugging along in the right direction.
Cut to the current scenario, we are now against the onslaught of consumers watching films on handheld devices, the menace of piracy and other forms of out-of-home entertainment. The one impetus the industry needed was a very palatable GST regime. In fact, because entertainment tax has always been a state subject and some of the governments have an abysmally low price cap, the GST regime was the ray of hope that the entire industry was really looking forward to with bated breath. This was the only elixir that could propel the growth of the industry to global levels.
One has to understand the industry has also survived so far because of its pan-India multi-state approach. Films are released country-wide. And exhibition chains are spread across India. If we were to be regional or stuck to one state then any adverse change in the tax regime would have toppled the industry. Everyone has been keeping the ship afloat by defraying its risks in various states. A palatable GST rate would have bought parity and removed the volatility we have faced over the years.
World over, cinemas are hardly taxed more than in single-digit rates. This has helped the cinema industry in these countries to plough back the money into high quality, and globally appealing movies. This benefits everyone.
We would have done the same if we had got a better GST rate. India has the talent to make movies that can woo not just Indians to the theatres, but a worldwide audience. One of the biggest export earners for the UK is its creative sector fueled by their music and movie industries. Our creative sector too has a huge potential. We could have also fast-tracked our screen growth, which is the lowest in the world. We have just 2,000 multiplex screens and 6,000 single screens, compared to over 30,000 each in the US and China.
In addition to the economic reasons given above, I also have a huge emotional issue with the GST slab. Why is the slab clubbing us, the movie industry, with casinos and betting, and with revolvers and pistols? Is watching a cinema really akin to gambling? Is the Government trying to encourage cinemas, which are embedded in the social fabric of our country, or is it discouraging the industry by clubbing it with gambling and betting? This high tax bracket also applies to luxury goods and services. How is cinema a luxury?
Last year, 2.7 billion tickets were sold at an average ticket price of less than Rs 80? It's entertainment for the masses. So accordingly the lesser GST slab should have been imposed. Clint Eastwood said in one his talks that cinema is an emotional art form. Therefore this step is a huge setback. While we have the maturity of being pragmatic, we equally feel emotional and let down by this categorisation.