The government told a team of Bollywood producers, who came calling at the finance ministry on Monday against the recent imposition of service tax, that they will have to pay up as long as they make money on any of their commercial ventures.
A team comprising Yash Chopra, Boney Kapoor and Mukesh Bhatt among others met the chairman of Central Board of Excise and Customs (CBEC) on Monday afternoon to protest against the recent imposition of service tax.
In the Budget for 2010-11, finance minister Pranab Mukherjee had brought copyright on cinematographic films and sound recording under the ambit of service tax. However, copyright on original literary, dramatic, musical and artistic work would continue to remain outside the scope of service tax.
This meant that as long as a singer or a scriptwriter made any original creation, it remained outside the ambit of tax. But the moment he sold it for making of a movie that went for commercial release, the original creation came under the ambit of taxation.
Indirectly, now, nothing that goes into the making of a movie and set for a commercial release remains outside the ambit of service tax.
To be charged at the rate of 10%, the new tax would be an addition to the cost of movies that had recently scaled new heights with some big banner films costing Rs 100 crore and more on production and promotion.
A senior finance ministry official said the chairman of CBEC explained the provisions of the new levy imposed stating that it was charged only when the film was meant for commercial release. "In case it is a non-profit venture, it will not be subject to taxation," the official said.
Bollywood movies were among seven other services that were brought under the tax net in the 2010-11 Budget. The expanded list included organising beauty pageants, health check-up provided by employer, service provided by electricity exchanges, real estate, promotion of a brand, game shows and lotteries.
Bollywood is not the only one grieving at the imposition of service tax. In fact, the first protest came from railway minister Mamata Banerjee who objected to bringing non-essential commodities freight under the tax ambit.
It is believed that service tax on rail freight is likely to eat into the entire profit of the railways and leave it with very little to provision for future expansion and meet expenditure on rail safety. The finance ministry, however, estimates an earning of Rs 800 crore from rail freight annually.