The cinemas in Tamil Nadu have been shut since Monday as the state government levied a Local Body Tax (LBT) of 30% on the top of the 18% or 28% Goods And Service Tax (GST) which came into play on Saturday. GST was supposed to a system of one nation and one tax but its not working out that way for the film industry. GST was supposed to replace all taxes but in Tamil Nadu the Entertainment Tax is still there and its just changed name and is now called LBT.  The biggest problem is that central government has left it open to state governments to add local taxes on top of GST and this problem is not just one for the Tamil film industry but could be a huge one for the Hindi film industry as well.

There are already word in the exhibition sector that LBT is going to be applied in Delhi and Chandigarh (both Union Territories) of around 30% which will mean a huge ticket price rise or a smaller share of the ticket revenue for the producer / distributor. There is possibility of LBT in Gujarat and Maharashtra as well and decisions are likely to be coming soon. If the state governments apply there LBT's then it will basically mean that GST is an added tax on the ticket and not a replacement. Entertainment Tax was around 35-40% of the NETT ticket rate for a Hindi film depending on how the state ratios came out. It was in the 30-35% region a few years back but Delhi city increased its rate and Rajasthan pulled out the tax the exemption. Now there is a fear in the industry that this could go to 50-55% if these state governments apply local taxes. the last time it was so high was in the mid 2000's.

It has been around 100% in the mid 80's but started coming down post 1987 and a few years back at 30-35% it was at its lowest point since the late 50's. Today the industry would just not be able to handle what has happened in Tamil Nadu as footfalls are already down and exhibition sector growth is limited. there should be some clarity on this over the next few weeks and all the industry can do is hope that there is no LBT.