The film industry welcomes the reduction of the GST rate on food served at movie theaters to 5%

The GST Council’s decision to reduce the tax rates on food and drinks served in movie theaters was applauded on Tuesday by multiplex operators who said it would assist the theater industry recover post-Covid and prevent legal disputes.

The Goods and Services Tax (GST) Council, which is presided over by the Union Finance Minister and is made up of members from all the states and UTs, resolved on Tuesday to reduce the service tax assessed on food and drinks consumed at movie theaters from 18% to 5%.

Food and beverage sales are a significant source of revenue for the movie-going business, particularly for multiplexes, which may derive up to 35% of their income from this sector.

“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% (without availing of input tax credit),” said Nitin Sood, CFO of PVR INOX Ltd.

The aforesaid explanation, he continued, “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 helping to revive the theater industry post-pandemic.”

After the epidemic, the movie theater business struggled as it was forced to shut in 2020 and reopen with limited limitations. They were finally permitted to operate at full capacity beginning in March 2022, and content pipelines began to flow.

According to Karan Taurani, SVP of Elara Capital, “from a financial viewpoint, it will have no effect, but there is a relief from a legal perspective. Now that it is clear that GST would stay at 5% for all food goods, there is certainty for the industry.

“This notification brings everyone on the same track and now all food items, whether it’s samosa or popcorn or otherwise, will be charged at 5%,” he said. “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.”

The premium meal options are now causing the F&B variety in the movie theater industry to greatly expand, he said.

Abneesh Roy, Executive Director, Institutional Equities, Nuvama Group, said that several of the top exhibitors, including PVR, had already made reservations with a 5% GST on food and beverage.

According to him, “PVR was charging at 5%, thinking that food and drink sold in theaters is similar to restaurant service, where it is 5%.”

In India, there were around 9,000 movie theaters before the outbreak. However, since the industry was unable to function for an extended length of time following the epidemic, several of them had to shut. It was launched with a number of limitations, which persisted for a very long period.