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Exemption of service tax to be limited to films exhibited in cinema halls

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NEW DELHI: The Government has decided to limit the benefit of exemption of service tax to films exhibited in cinema halls.

Finance Minister P Chidambaram today said in his Budget speech for 2013-14 that he had accepted a request of the film industry in this connection.

He pointed out that at the request of the film industry last year, full exemption of service tax was granted on copyright on cinematography.

The Film Federation of India had in its memorandum to the Finance Ministry said that cinema theatres and digital distribution should not be subjected to service tax for Business Support Services.

However, film industry sources said that they had expected more concessions in view of the fact that this year marks the centenary year of Indian cinema.

Among other things, the Federation had appealed to the Government that entertainment tax imposed by states and local bodies should be subsumed in the proposed Goods and Services Tax (GST).

The FFI said that the service tax on performing artistes should also be done away with. It was also demanded that the condition on filmmakers to fill a form under Section 52A of the Income Tax Act for all payments above Rs 50,000 should be confined to only cash payments.

The Federation said the sale, distribution or exhibition of cinematographic films, not regarded as royalty under 9(1)(vi) of the Income Tax Act 1961, is nullified as it is not available under the Direct Tax Code 2010. As it is not regarded as royalty, it does not attract the 10 per cent with-holding tax under Section 194J of the Act. It had, therefore, said an amendment should be made to exclude this from the Code.

Another demand was that exemption to digital conversion - and supply to cinemas - may be put in the Mega Exemption List.

Film industry welcomes exemption move

Film industry organisations today welcomed the benefit of exemption of service tax to films exhibited in cinema halls but felt that the Government had not taken note of the problems being faced by the film industry at a time when it was marking a centenary of Indian cinema.

Film and Television Producers Guild of India president Mukesh Bhatt in a telephonic interview regretted that Chidambaram had not considered digital distribution of films for exemption. He said the government should realise that digital distribution is helping curb piracy of films and is, thus, helping the government earn in entertainment tax and other taxes.

Exemption should have been given to all sectors relating to film exhibition and distribution, he told indiantelevision.com.

Film Federation of India President Bijay Khemka told indiantelevision.com that while the industry welcomed the exemption of service tax to films exhibited in cinema halls, he wondered why the Minister had said the tax exemption would be ‘limited’ to this sector only. He said the Federation had in its memorandum to the Finance Ministry said that cinema theatres and digital distribution should not be subjected to service tax for Business Support Services.

However, both Khemka and Bhatt felt that they would be able to say more after seeing the Finance Bill.

Meanwhile reacting to the partial relief to the film sector, Ernst and Young Tax Partner Rakesh Jariwala said: ‘Partial relief for the film sector as the non-theatrical revenues of a movie are now brought back in the tax net. Producers and distributors will be able to recover a portion of their input credits with this change, thus mitigating a portion of the adverse impact created by the complete exemption granted last year.’

He said for non-film business, impact of removal of exemption to copyright transactions will have to be measured in terms of eligibility of the service receiver to take credits.

He said however that the question of double taxation of transactions in intangible rights (between service tax and Value added tax) remains unanswered.

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