Can A State Declare a Film Tax Free?

This is a known fact for the consumers of mainstream media that the states governed by the Bharatiya Janata Party (BJP) have given tax exemptions to the films like 'The Kerala Story' and 'The Kashmir Files'.

This may be only a success story of designed publicity but there is another side to it. It is accurate to say that the state governments led by the BJP have distributed money meant for hospitals, schools, roads and other essential items for the citizens, among the producers of ‘The Kerala Story' and 'The Kashmir Files'.

This is not a mystery. Just the art of creating an illusion and hiding the truth. This funny story can be fully explained thus: First, the state governments cannot give tax exemption for films, although they have done so repeatedly in the past and present.

Big changes occurred in the tax revenue levied for cinema after the enactment of the Goods and Services Tax (GST) Law in the Center and the states as well. The GST levied on the sale of goods or services has two parts. One part belongs to the central government and the other part belongs to the state governments.

First, the money meant for the citizens of the states is being spent for these films, while the entire BJP seems ready to reap its benefits. There is a BJP-led government at the Center too, but it did not spend the Centre's money for these films. The Central leaders have only shown their empty support.

Now let us know what is the provision for tax exemption in the law made for GST. For that, the GST laws made by the Center and the States have mentioned the grounds and procedure for granting tax exemption in Section 11.

“(1) Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification.

“(2) Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by special order in each case, under circumstances of an exceptional nature to be stated in such order, exempt from payment of tax any goods or services or both on which tax is leviable.”

In most of the states that have issued notifications regarding 'The Kerala Story' and 'The Kashmir Files', there is no mention of this section to exempt these films from tax in any of the notifications. It is also not that the portion of GST that is paid to the state government is waived off for The 'The Kerala Story' and The 'The Kashmir Files'. But this has been propagated in the mainstream media this way.

Then what is there in the notification and how does the news of tax exemption come in the media? A notification is a legal document, while the media are like those ‘Babas’ who are free to present religious scriptures in their own way among the people.

The notifications regarding 'The Kerala Story' and 'The Kashmir Files' states that the government will reimburse an amount equal to the tax to cinema hall owners. The notification dated March 16 2022, issued by the Commercial Taxes Department, Government of Bihar for ‘The Kashmir Files’ can be viewed here.

It is written that the approval of reimbursement of the equivalent amount of State Goods Service Tax (SGST) payable on the entry fee charged for admission to multiplexes/cinema houses is granted subject to conditions.

This means that multiplex/cinema owners will be given that amount when they claim the GST share of the state governments and fill the form for it.

The language and pattern of the notifications issued by all the state governments for the film 'The Kerala Story' and ‘The Kashmir Files’ are almost the same. There is no mention of the section of the SGST act in the notification under which the order for reimbursement has been given.

More than eight state governments had issued such a notification for ‘The Kashmir Files’. For 'The Kerala Story', this number is less than that. According to reports, four BJP-ruled states have ordered cinema owners to return money equal to SGST .

The State government cannot decide to exempt films from SGST because there is a provision in the law that the GST Council will recommend exemption from GST for any goods and services and only after that the government can exempt them from tax. Naturally, it may take time to go through this route and such a recommendation in the GST Council may be impossible.

Because the governments run by the political parties have the right to exempt from tax, there is a possibility of misuse for political gains. The stories of failure of the GST law in Pakistan in the same fashion came before the GST Council when the provision of exemption from tax was being discussed . That’s why the provisions of recommendation of the GST council for exemption was incorporated in the act as section 11.

How did the political parties find a way out and how legal is it? We can understand this puzzle also in this way. First of all, know that when the government makes provision for tax, it is called revenue.

Then the government spends the tax money. After collecting the amount of tax as revenue, the government can spend it in the interests of the state and its people. It can be spent on schemes for development or welfare programs for people who are in crisis.

It is appropriate and accurate to say that the government has spent tax money on these films as well. This amount could also be for development of the basic needs like school, hospital etc. It can only be guessed that a large part of these expenses incurred by the government has also gone to those who are producing the films like “The Kerala Story’. The producer of ‘The Kashmir Files' is said to have made a profit of several hundred crores.

It is also a fact that after the enactment of the law for GST, various state governments have announced tax exemption for many films. The GST Council’s recommendation is necessary for the provision of making a film tax free, under the GST law. In 2018, actor Akshay Kumar took to Twitter to thank the GST Council for making his film ‘Pad Man’ tax free.

The announcement of a tax free status for films by the Chief Ministers as the head of the state government is actually a decision to spend the revenue received from the tax. Cinema owners claim imbursement of that part of GST which is the share of a state.

The interest of the common people in the society is not taken care of in this decision of the states to refund the tax money to the cinema owners. Films such as ‘The Kashmir Files’ and ‘The Kerala Story’ are just some of the films that were notified by the BJP ruled states for the tax money.

Even a film such as ‘Hindi Medium’ was declared tax free, not for development of the Hindi language but for political gains. ‘Promoting’ Hindi in the film's name to possibly increase the amount of political profit. This writer has researched how Hindi as a language has declined at the level of reading and writing in recent years.

The other political parties which have decided to imburse the tax money to the cinema owners for the films have also done it as a result of the ‘political competition.’

Anil Chamadia is a senior journalist of repute. Views expressed are the writer’s own.