While there has been a huge cry over levy of entertainment taxes by local bodies over and above the Goods and Services Tax (GST), the Fifth State Finance Commission (FSFC) had indeed recommended such a levy, to prevent loss of revenue to local bodies.
Prior to GST, Tamil Nadu had shared the revenue from entertainment tax with the local bodies. Entertainment tax is now subsumed in GST. The State either had to empower local bodies to levy the Entertainment Tax or compensate them for the loss of revenue, the Commission pointed out.
Constitutional provision
“The commission recommends that the government must take urgent action to legislate and permit local bodies to levy and collect entertainment tax, in the light of new GST provisions. In Tamil Nadu’s context, this is important as the entire revenue from Entertainment Tax was assigned to local bodies although it was collected by a State government agency,” the report said.
It noted that the 101st Constitution Amendment (which paved the way for GST) permits levy and collection of Entertainment Tax by local bodies and Government of Tamil Nadu should enact a law to enable local bodies to levy, collect and appropriate Entertainment Tax. Alternatively, in the absence of a law it suggested that the State may compensate local bodies for the revenue loss and compensation may be made equal to 90% of the State GST collected on entertainment.
Prior to GST, Tamil Nadu government had collected entertainment tax on entertainment (including films), horse racing, amusements, cable TV, and recreation parlours.
Out of this, the State government shared tax collected on entertainment and amusements with local bodies, after retaining 10% as collection charges.
FSFC had noted the dwindling trend in entertainment tax collections over the years, on account of exemptions granted to Tamil films.
Just ahead of the GST rollout, Tamil Nadu enacted a law empowering local bodies to levy entertainment taxes in the range of 20-30%. This was over and above the GST for movie tickets, which was strongly opposed by cinema owners. Now a committee has been appointed to look into the issue.
“To earn additional revenue or to make up for the shortfalls in revenues arising following the implementation of GST. It is within the prerogative of States to levy additional local body taxes,” Kavita Chacko, Senior Economist, Care Ratings, said.
She pointed out that Tamil Nadu was not the only State looking at levying local body taxes. “Maharashtra increased one-time registration tax on private two-wheelers and four-wheelers by 2%. Rajasthan , Madhya Pradesh and Gujarat are reported to be thinking of additional levies,” she added.
