How New GST Rules Impact Cinema Halls, Automobile Sector, And Online Gaming | Explained

The GST Council has announced a number of changes on Tuesday, including reducing GST on food sold in cinema halls, clarity on the utility vehicles definition, and a 28 per cent tax on online gaming

The GST Council on Tuesday decided to lower the service tax levied on food and beverages consumed in cinema halls to 5 per cent from 18 per cent. 

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The GST Council on Tuesday took a number of decisions including slashing GST on food and beverages sold in cinema halls, providing clarity on the taxation structure for utility vehicles, and imposing a 28 per cent tax on online gaming and casinos. These announcements have been received with mixed reactions across industries.

Here are the some key changes announced after the 50th GST Council meeting and what the industry thinks about them.

Food & Beverages In Cinema Halls

The GST Council, headed by Finance Minister Nirmala Sitharaman and comprising of representatives of all states and UTs, on Tuesday decided to lower the service tax levied on food and beverages consumed in cinema halls to 5 per cent from 18 per cent. 

If you buy a cinema ticket and food at the same time, the government considers that as a single purchase. They will tax the entire purchase at the rate of the ticket, as they will be considered a "composite supply". 

According to a PTI report, F&B (food & beverages) are an important source of earnings for the cinema exhibition industry and the multiplexes earn up to 35 per cent of their revenues from this segment.

"The entire cinema industry welcomes the clarification issued by the GST Council today that food and beverages sold at the cinemas will get covered under the definition of 'restaurant service' and would be liable to GST @5 per cent (without availment of input tax credit)," PVR INOX Ltd CFO Nitin Sood told the news agency welcoming the tweak. 

"The above clarification will help resolve the industry-wide issue for the sector which includes more than 9,000 cinemas across the country in avoiding disputes/ litigation from a GST standpoint, giving tax certainty and help in revival of the theatre business post-pandemic," he added.

"From the financial perspective, it will have zero impact but from a litigation perspective, there is a relief. Now there is clarity for the sector, which has emerged now that for any food products you have, GST would remain at 5 per cent," Karan Taurani, SVP of Elara Capital, said, as per the news agency. 

Clarity On Utility Vehicles Definition 

The GST Council decided to amend the compensation cess notification to include all utility vehicles by whatever name called provided they meet the parameters of length exceeding 4000 mm, engine capacity exceeding 1500 cc, and having Ground Clearance of 170 mm. All MUVs, SUVs, and XUVs will now attract a 22 per cent compensation cess on top of the existing 28 per cent GST.

Previously, only SUVs that were over 4000 mm long and had an engine displacement of over 1.5 liters were subject to a 22 per cent compensation cess. However, the definition of an SUV has now been expanded to include any vehicle that meets the criteria listed above. As per a report by Financial Express, the change means that many popular vehicles, such as the Maruti Suzuki Ertiga, Grand Vitara, Toyota Hyryder, Maruti Suzuki Invicto, Toyota Hycross, Kia Carens, Seltos, Creta, and many others, will become more expensive.

Auto industry experts feel that this clarity ensures that the rate entry is more precise leaving little room for interpretation on the ambit of ground clearance, as per a NDTV report. 

Online Gaming Under GST Ambit

The GST Council also announced a 28 per cent tax on full face value of online gaming, casinos, and horse racing. According to Finance Minister Nirmala Sitharaman, the council does not seek to "end any industry," but there have been discussions about the "moral question" raised by the online gaming industry.

Shivani Jha, Tech Policy Lawyer and Director, EPWA (E-Gamers and Players Welfare Association) said that the move “will not only discourage players from playing, the professionals for whom its a livelihood will be burdened by taxation.”

“This development indicates an increase from 1.8 rupees per 100 rupees spent on a game to 28 rupees on per 100. It may also force them to play on offshore platforms, and the whole vision of creating a digital progressing gaming ecosystem seems blurry at this point," Jha added. 

Even BharatPe founder and celebrated Shark Tank ex-investor Ashneer Grover took to Twitter saying, "It was good fun being part of the fantasy gaming industry - which stands murdered now. $10 billion down the drain in this monsoon."

"If the govt is thinking people will put in Rs 100 to play on Rs 72 pot entry (28 per cent Gross GST); and if they win Rs 54 (after platform fees)- they will pay 30 per cent TDS on that - for which they will get free swimming pool in their living room come the first monsoon - not happening," he added.