Multiplex owners in UP demand clarity on refund as tax exemptions go away after GST

Multiplex chains with new properties in Uttar Pradesh are in a pickle as the tax sops promised by the state government have gone away under the Goods & Services Tax (GST) regime.

In a bid to get investments in the state, the Akhilesh Yadav-led previous state government had doled out sops including a five-year tax exemption to multiplexes. As part of the scheme of exemption, multiplex companies were allowed to charge and retain entertainment tax under different slabs.

The multiplex companies could retain 100% of entertainment tax charged in the first year, 75% in second and third year, and 50% charged in fourth and fifth year of operations, respectively.

However, with the implementation of GST since July 1, entertainment tax has been subsumed and the attempts made by some multiplexes to get refund from the state government have been in vain.

Seeking relief, GNG Enterprises has filed a writ petition in the Allahabad High Court, while other multiplexes are actively approaching the state government for clarity.

“Many multiplexes had invested in UP based on the government’s assurance of tax breaks, but since July entertainment taxes are subsumed in GST,” said Abhishek A Rastogi, partner at Khaitan & Co. “The way government has given some leeway to special manufacturing zones, these multiplexes must also be given promised relief as they are bearing the extra burden just for relying on a government’s policy.”
Incidentally, it is not just UP, but many states have offered tax holidays linked to investments, and while the implementation of GST all such schemes were repealed, there are saving clauses grandfathering such exemption.

Deepak Asher, president of the Multiplex Association of India (MAI) and director of INOX Leisure, said the problem is not just with UP, but with all the states, wherever exemptions were given by the respective state governments. “Under the policy, there is a clause for grandfathering geographical exemptions. Ideally, the states should refund the amount promised under the exemption, but none of the states have issued any clarification or refund mechanism,” Asher said.
A grandfathering clause primarily refers to an arrangement where benefits under erstwhile tax regime are carried forward as it is under the new tax framework. In this case, many feel that the sops extended to multiplexes should be grandfathered under GST, that is similar benefits must be extended under the common indirect tax framework.
Nitin Sood, CFO at PVR, added that his company, along with MAI have made presentations to various state governments, and they are expecting the states to come out with refund rules.
“A lot of investments have been made into various states, where such investments were incentivised with exemptions. We are waiting for clarity from state governments on the issue and hoping that within few months, they will come out with refund policy,” Sood said.
However, Pratik Jain, national leader-indirect tax at PwC India, clarified that there is nothing specific under State GST laws that envisages grandfathering of earlier benefits with respect to entertainment taxes by state governments to multiplexes. “While the multiplexes would want the states to compensate by way of SGST refund or exemption, this would depend on each state’s policy and the GST Council may not be able to intervene as this is not a national policy issue,” Jain said.
Tax holidays amount to a significant sum for the multiplex industry and in its absence, it will cause a significant pressure. According to various industry estimates, in 2016-17, the total amount of exemption was close to Rs 120 crore, out of which PVR alone enjoyed tax exemptions of Rs 40 crore.


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