📽️ Do Tax-Free Movies Make Sense?
A lot of movies are now getting tax exemptions from states. But what do these tax exemptions mean and do they really help?
A new trend is taking over Bollywood right now.
Making movies tax-free.
Recently many states have made movies like 83, Samrat Prithviraj and The Kashmir Files tax-free.
But is this really making make a difference?
🤑 What Does Tax-Free Really Mean?
Before we get into the whole tax-free discussion let's address the burning question: what tax are we talking about?
The simple answer: GST.
The more complicated answer: SGST.
In earlier pre-GST times, states used to collect entertainment taxes according to their discretion and could waive it off when they felt like it.
Since the whole GST tax regime has been introduced, states and the central government share the tax charged on movie tickets.
So, when you hear about movies going tax-free only the SGST (state's portion of GST) is waived off.
Customers still have to pay the CGST.
And it is worse for the theatre owners.
Even though they don’t receive a share of the state tax from customers, they still have to deposit the same with the government.
You see, a waiver doesn't mean no collection at all. It simply means that the theatre will have to pay the amount first and then claim refunds, which can take months.
For cash-strapped theatres, this is a huge issue.
So, they end up increasing ticket prices to make up for the cost.
End result? Viewers stay at home and enjoy OTT services which often cost less than the price of one ticket.
The tax-free status ends up making no difference.
Which is a huge issue because this could really have helped theatres and film producers that are still reeling from the closures in the pandemic.
🔍 The Current State of the Box Office
Thanks to the pandemic, we have all become OTT addicts, used to watching movies at our leisure, for cheap and with popcorn that you don’t have to sell your kidney for.
In fact, content streaming has witnessed a 60% increase in the last two years.
Which is why a lot of movies are now pivoting to OTT.
But does a pivot to OTT make sense for films?
Well, yes and no.
You see, releasing a movie in a theatre is a huge risk.
To ensure profits, a movie with an average budget needs to run for at least 65% occupancy for at least a week.
And to break even it has to get a 45% occupancy.
Now, this may not seem like a huge goal but with so many new forms of entertainment coming up, like IPL and OTT, movies are having a hard time filling theatres.
Also, earlier we had to wait for months for a movie to air on the television or on an OTT.
But with torrents, fast TV, and OTT releases, the thrill of watching a movie in a theatre has gone down.
So, launching a movie on an OTT for a fixed fee makes sense for many low-budget movies that are sceptical about audience reception.
This directly reduces their printing and distribution costs (accounts for around 30% of the budget) and the 40% commission that distributors charge.
Plus, these- movies can achieve profits or at least break even, even though no one watches them on the OTT platform.
So, will all movies eventually shift to OTTs?
No, because the fixed fee model is not viable for high-budget Rs. 100 crore films.
They still need to fill theatres to become profitable.
But the problem is they are unable to do so right now.
At least the Hindi film industry is.
The South Indian film industry seems to have cracked the code of driving audiences to theatres.
They are doing so by making grand films that audiences would like to watch on the big screen.
Moreover, a lot of these films are now opting for a mixed release to hedge their risks.
But this could be a risk as people may simply choose to wait for a film to come to the OTT service they have paid for instead of spending more money on tickets.
We’ll have to wait and watch to see if and how the film industry will evolve to adjust to this new viewing pattern of the audiences.
⚡In a line: More and more films are getting a tax-free status these days, but this isn’t really helping drive sales because of cheap OTT subscription prices.
💡Quick question: Do you think Bollywood can crack the secret to filling houseful shows again?
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