Central Board of Excise and Customs (CBEC) has recommended amending the rules to widen the scope of levying service tax on the entertainment business.This recommendation has been made for the coming Budget (2010-11). Entertainment is currently taxed separately by states and as service tax by the central government.
According to official sources, there is no uniformity in the taxation of these businesses. The taxes are paid on a case-to-case basis. At present, a lot of areas are out of the tax ambit. When identified for tax levy, the assessee usually enters into litigation.
Entertainment is taxed under the head of event management, defined as any service provided in relation to planning, promotion, organising or presentation of any arts, entertainment, business, sports, marriage or any other event and includes any consultation provided in this regard.
The board feels this is a narrow definition, leaving too much to interpretation. Instead, every aspect of the entertainment and entertainment industry should be brought under service tax, since the entire industry is based on services.
The recommendation suggests fixed norms for taxing every step of the business, from pre-production, production, post-production, launches, endorsements, advertising, marketing and distribution, among others. Sources added the ministry was currently examining these recommendations.
Under the proposed Goods and Services Tax (GST), service tax will be subsumed under the Central Goods and Services Tax, while entertainment tax will be included under the state GST, along with the value added tax, or sales tax, tax on lottery, luxury tax and state cess and surcharge, among others.
The board has clarified in the proposal for GST that entertainment tax will be subsumed under state GST only if it is not levied by local bodies.
Officials added that it did not matter where it was taxed. The proposal merely is for differentiating items in various stages of a certain entertainment business — movies, television, theatre and sports — which are liable for service tax.