Entertainment taxes: how, why and where

Entertainment taxes might sound ridiculous, but in the film loving country of India and many other countries in the world, entertainment taxes are one of the major sources of income. From simple film tickets to cable operators, from celebrity income taxes to taxes on luxury items, entertainment taxes are becoming the next big thing in the world of taxes. Thank goodness they didn’t levy one on your Xbox! While you ponder how lucky you are, go ahead and get some tax returns, then read more about entertainment taxes on film and media.

entertainment tax

What history has to say

Back in the British era, before Indian independence, the British government levied heavy taxes on events, such as large fairs, circuses, magic shows, and basically any place where a large gathering of the locals had every possibility of a rebellion. These taxes on the events of amusements and entertainment came to be called entertainment taxes. Thus, they formulated many entertainment tax acts of the state government that permits any rate of tax beyond even a 100%! After the independence of India in 1947, these old enactments have been forgotten and never updated. Hence, there has been no revision or repeal of these acts, and entertainment taxes are still going strong.

Today’s taxes

With the introduction of pay channels on television, the source of revenue has grown tenfold, as entertainment is being provided through DTH, Pay TV, cable, etc. The nature of entertainment is such that, it cannot be separated from the whole transaction of these services. The component of entertainment is intrinsically intertwined in this way with the service. Given this nature of the transaction service, it is being subjected to taxation by both the State and the National government.

Getting a tax return or two? Lucky you!

The tax structure

Now, in such a case where entertainment is subject to taxation from both the National and the State government of a country, it is natural that the National claim should supersede over the State claim to taxes. The fiscal principle underlying article 246 of the constitution separates the sources of taxation for the National and the State government, maintaining exclusivity. In case of a conflict, i.e., claim of both governments at once, then the National government should get priority. Entertainment taxes vary structurally across India and is highest in Uttar Pradesh (60%). In Maharashtra, entertainment tax was reduced by only 5% in 2005 and now stands at 45%. There happens to be no tax in the state of Tamil Nadu and Maharashtra for their respective film industry productions.

The rest of the world

Entertainment tax has been enforced in Malaysia since 1st October 1953 under the Entertainment Duty Act of 1953. For more than 60 years, it has been accepted in the country that entertainment tax is partof the cost of enjoying the luxury of watching a movie in the cinema. Hence, the additional 6% GST is just a slight change to the existing tax. This news of the increase was met with mixed reactions from the country.

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