JULY 31, 2017

By Shalini Ranjan, Assistant Manager, Grant Thornton India LLP.

'ENTERTAINMENT', for all practical purposes in today's times, includes various modes of recreation – including, but not limited to; circuses, theatre, celebrity–driven events, sporting extravaganzas (especially money–churners like the IPL and the ISL) etc.

Hence, it is only natural that this vast expansion in what 'entertainment' means to us in today's age of click–button information and broadcasting would also entail significant changes in the treatment of the same from a taxation point of view. Under the erstwhile indirect tax regime,State Governments used to derive the power to levy Entertainment Tax vide List II, Schedule 7 of the Constitution of India. Exhibitions, sports events, amusement parks, theatre etc.were the primary areas that attracted the levy of Entertainment Tax.

Introduction of Entertainment Tax – The backdrop

The practice of levying tax on entertainment and amusement was initiated by the British Government to discourage public gatherings. However, even after independence, when governance changed its hands, a source of revenue was too dear for the Governments to let go of. Thus, levy and collection of Entertainment Tax continued unabated.

The rate of Entertainment Tax varied from 15% to 110%; with the highest rate being levied by the State of Jharkhand. However, the States which levied the said tax did offer major concessions to the screening of movies in respective local languages.

Introduction of GST and the 101st Constitutional Amendment

To make way for uniformity in indirect taxation and to remove various ills plaguing the indirect tax system in India – namely multiple levy of taxes, cascading effect and double taxation; Lists I and II of Schedule 7 of the Constitution of India were amended by way of the Constitution (One Hundred and First Amendment) Act, 2016. The said Amendment effectively paved the way for Central levies such as Central Excise Duty, Service Tax etc. as well as State levies such as Value Added Tax, Entertainment Tax, and Luxury Tax to be subsumed under GST.

The said Amendment entailed, inter alia ,the substitution to Entry 62 of List II in the manner specified below:

Prior to amendment

Post amendment

Entertainment Tax: Post–GST perpetuation?

Subsequent to the introduction of GST, all erstwhile Statutes created for the levy and administration of Entertainment Tax by the respective State Governments were repealed; with the respective State GST Acts as well as Rules taking up the said mantle. Consequently, at present, entry to events like sports, exhibitions, amusement facilities, theme parks etc. attracts GST at the maximum imposable rate of 28%.

With the intention of making good the losses suffered by various States as a result of the introduction of GST, the Government enacted the Goods and Services Tax (Compensation to States) Act, 2017;which deals with the levy of a 'compensatory' cess on various goods and services. Section 5(1)(d) of the GST Compensation to States Act takes into consideration the revenue earned by the States from the taxes on luxuries, including taxes on entertainments, amusements, betting and gambling or any other tax levied by the concerned State under the erstwhile entry 62 of List-II (State List) of the Seventh Schedule to the Constitution for determining the Cess which may be imposed by a State.

However, it is important to note a small tweaking carried out in Entry 62 vide the 101 st Amendment to the Constitution. The said tweak ensures that the levy of Entertainment Tax is not completely removed; but rather empowers the local authorities to levy the same. Therefore, Entertainment Tax (if) levied by local authorities, continues to thrive under GST.

For instance, the State of Haryana levied Entertainment Tax via the Punjab Entertainments Duty Act, 1955. The Haryana Goods and Services Tax Act, 2017, in line with Constitutional Amendment, repealed the Punjab Entertainments Duty Act, 1955 via Section 174, leading to no separate levy of Entertainment Tax by the State under GST.

Nevertheless, exercising the powers conferred under the Constitution of India;the Haryana Cabinet has approved the Haryana Municipal Entertainment Duty Bill, 2017, wherein 'Entertainment Duty' shall be collected by urban municipal bodies. It is important to note that this levy and collection shall be over and above the GST paid on events for entertainment.

It appears that Haryana is not the sole State heading towards levy of Entertainment Duty under GST, but there are others which have and may follow suit.

The action taken by the State of Haryana or by any other State shall be well within four corners of Law since the power to levy Entertainment Tax has been given to local authorities. In a situation wherein States are levying Compensation Cess in lieu of revenue loss due to inclusion of taxes like luxury, entertainment, and entry into GST, a separate levy such as Entertainment Tax is nothing but specially engineered way for the States to levy an additional tax.

If the above is not curtailed, this shall effectively defeat the very objective behind the introduction of GST.

(The views expressed are strictly personal.)