NEW DELHI: The Associated Chambers of Commerce and Industry of India (Assocham) feels that the government should exempt the transactions between film producers and distributors and those between distributors and exhibitors from service tax as the sector is already burdened with various types of taxes.

Furthermore, the levy of Value Added Tax (VAT) by the state governments at the instance of the central government should be scrapped.

Assocham said the guidelines issued by the Reserve Bank of India on 14 May 2001 pursuant to the grant of industry status to the film industry on 16 October 2000 had completely ignored the distribution and exhibition sectors and, therefore, bank finance was being made available only to the production sector. Although organisations of the film industry had appealed for removal of this anomaly from time to time, the government had not paid heed.

There was need for encouraging flow of special funds from government and the corporate sector to provide support to eminent film makers for development of regional culture. Grants from central government should be given to encourage regional films.

In the wake of amendments in the Finance Act 2007, service tax had been made applicable in case of renting/leasing, letting immovable property which includes theatres, exhibition halls and multiple use buildings with the result that the Central Excise Departments issued notices for recovery of service tax.

The VAT rates imposed at the instance of the centre differ from State to State from 4 per cent to 12 per cent. "The irony of this tax is that it cannot be passed on to the last person i.e. the cinegoer with the result that it ends at the distributor who even after making huge investment in buying the film is unsure as to whether he would be able to recover his investment and over and above he has to pay VAT despite his film flops. The Film Distribution is an unpredictable business and is the only segment where a purchaser is given guarantee of a product without actually verifying its contents.