The industry is desperately seeking clarity on how GST will affect sponsorships, registrations, ticket prices and local body taxes.
With barely 48 hours to go before the implementation of the landmark Goods and Services Tax (GST), the booming events industry in the country is set to face a variety of challenges. They range from losing out on profit opportunities to the prospect of paying local body taxes above and beyond the ‘all encompassing’ GST. According to one estimate, the industry is estimated to be worth around Rs 5,779 crore and growing around 15 per cent per year.
But most of all, they are facing an information-paralysis, and are desperately seeking clarity about the multiple new registrations and procedures that the taxation regime will usher in.
Currently entertainment tax levied on events is a state subject and differs across the country. Under GST, a tax of 28 per cent will be levied on entertainment events. So why is the industry so worried?
A higher tax on sponsorship
Sponsorship forms an important part of the events industry and are increasingly being used as a form of marketing and an effective way to reach out to a target audience. Sponsors shall be taxed under a reverse-charge mechanism like before, but what is likely to change now is the rate of tax. So the tax which was 15 per cent will now be 18 per cent.
Vivek B Singh, Joint Managing Director at sports management company Procam International, said even the system of reverse charge mechanism ‘draconian’ and an anomaly.
“While a body corporate is talking to another, why should there be a reverse charge?”, Singh said.
It isn’t the only issue. A novel aspect of GST is ‘input credit’ wherein one can deduct the tax paid on inputs while paying tax on output. But this hasn’t been extended to sponsorship.
“There is no input credit on sponsorship,” Vijay Nair, Founder & CEO of Mumbai-based Only Much Louder, said. He said that GST will be very harsh on certain aspects of the events industry and will result in the loss of a huge arbitrage opportunity.
Registration across states
GST being a destination-based tax will prove to be a hurdle for event management companies, because they usually have their headquarters in one state, but organise events across the country. So if a Bangalore-based company provides a service in Mumbai, they require registration in both states.
“GST for the events industry is going to be a challenge. The company will have to get registered in the state where they provide services,” Utkarsh Sanghvi, a partner at Ernst and Young said.
Local body taxes remain
“GST is per se not a central tax, but one nation and 37 taxes,” Sanghvi, from Ernst and Young, said.
Despite GST, local civic bodies, like in Mumbai, will be free to impose an additional tax which will differ from state to state as it is purely discretionary.
“It a major loophole and will further raise the price of tickets” Nair said.
But a government official said nothing can be done about it.
“We are implementing GST, according to the law. It is the constitutional right of the municipalities to tax 29 items. We can’t do anything about it,” an official from the Tax Research Unit of Central Board of Excise and Customs said on the condition of anonymity because he wasn’t authorised to speak to the media.
Costlier sporting events
For sports events such as IPL, ticket prices may rise.
“Some sporting events are going to become expensive as the rate of tax on entry passes will be 28 per cent in comparison to 25 per cent,” Prateek Bindal, a tax analyst, said.
Procam’s Singh points out that Prime Minister Narendra Modi has been exceptionally supportive of sports.
“So why is the sporting industry not being encouraged?” he said.
More administration hurdles.
Event organisers say the rules and procedures under GST are cumbersome and are expected to create administrative hurdles.
“GST will be administratively challenging and will require more manpower and training,” Mahesh Balakrishna, Chief Financial Officer at Procam, said.
OML’s Nair anticipates an adverse impact on the MICE (Meetings, Incentives, Conferences, and Events) industry due to the multiplicity of registrations and laws applied to it. Nair and Singh say they have sent their representations to the government on the tax and are currently awaiting responses.
The official from the Tax Research Unit of the Central Board of Excise and Customs maintained that all provisions were being implemented in accordance with the law.