Multiplex operators expressed their appreciation for the GST Council’s recent announcement to reduce tax rates on food and beverages sold in cinema halls. They believe that this decision will greatly contribute to the recovery of the theatre industry following the impact of the Covid-19 pandemic and also help in avoiding potential legal disputes. The GST Council, led by the Union finance minister and including representatives from all states and Union Territories, made the significant decision on Tuesday to decrease the service tax imposed on food and beverages consumed in cinema halls from 18% to 5%.
Food and beverages (F&B) play a crucial role in generating revenue for the cinema exhibition industry, particularly for multiplexes, which derive up to 35% of their earnings from this segment.
PVR INOX Ltd CFO Nitin Sood said, “The entire cinema industry welcomes the clarification issued by the GST Council today that food and beverages sold at the cinemas will get covered under the definition of ‘restaurant service’ and would be liable to GST @5 per cent (without availment of input tax credit).”
“The above clarification will help resolve the industry-wide issue for the sector which includes more than 9,000 cinemas across the country in avoiding disputes/ litigation from a GST standpoint, giving tax certainty and help in revival of the theatre business post-pandemic,” he added.
Following the pandemic, the film exhibition industry faced significant challenges as theaters remained closed in 2020 and gradually reopened with certain restrictions. However, starting from March 2022, they were permitted to operate at full capacity without any limitations. This development brought a positive change as content pipelines began to flow once again, rejuvenating the industry.
Karan Taurani, SVP of Elara Capital, said, “From the financial perspective, it will have zero impact but from a litigation perspective, there is a relief. Now there is clarity for the sector, which has emerged now that for any food products you have, GST would remain at 5 per cent.
“Various states were asking the GST Council to imply a higher GST and there was no clarity and cinema operators were in litigation with state governments,” he said, adding, “Now this notification brings everyone on the same track and now all food items whether its samosa or popcorn or else, will be charged at 5 per cent.”
According to him, the cinema business is currently witnessing a tremendous increase in the variety of food and beverages, thanks to the introduction of premium dining options.
Abneesh Roy, the Executive Director of Institutional Equities at Nuvama Group, mentioned that prominent exhibitors such as PVR were already making F&B bookings with a 5% Goods and Services Tax (GST) rate.
“PVR was charging at 5 per cent taking a view that food and beverage sold in cinemas is similar to restaurant service where it is 5 per cent,” he said.
Before the pandemic, India boasted a staggering number of over 9,000 cinema screens. Unfortunately, a portion of these screens had to shut down in the aftermath of the pandemic due to financial difficulties resulting from the prolonged closure of the industry. When theaters finally reopened, they had to adhere to various restrictions, which persisted for an extended period.