Goods and Services Tax

The other day, I was required to attend a dialog session with the Ministry of Finance regarding the proposed new Goods and Services Tax (GST). The plan is to enforce this tax from November 2007 onwards, replacing the current sales tax.

Almost everything will be affected by this tax and we shall see a general increase in inflation as happened in Singapore when they first introduced the tax, for example. However, the plan should be to reduce the general income tax rate but then this does not really help much since we pay GST as we consume but the income tax will only affect us once a year. Effectively, we are paying upfront tax.

After the presentation comes the Q&A session. I was compelled to ask about the impact this has on the price the ticket price at the cinema box office. Would the tax be imposed on top of the Entertainment Tax that has already been levied at 25% of the net ticket price (or 20% on gross ticket price)? If it is indeed additional to that, is it then not fair and shouldn't they somehow re-examine the entertainment tax that is really quite out of date?

As someone told me, the “entertainment tax” in the olden days was imposed for a very specific reason. Film projectors in those days were not as hi-tech as it is now and it was common that films get burnt and starts a fire. If you have personally experienced it or if you have watched “Cinema Paradiso”, you will be able to understand that.

Now, the authority needs to get fire engines on standby near the cinemas in case a fire breaks out and these “entertainment taxes” are used to pay for that cost. But in this modern time, films rarely get burnt and the reason for the existence of this tax is no longer valid.

Well, back to the point. The officer could not answer my question on the spot and said that they shall need to consult with the respective state governments.

This is interesting. You will want to know that the entertainment tax is actually collected by the state government, not the federal government. It is sort of like an extra income for the state but GST is federal income. Inevitably, if the federal government is to do something about the entertainment tax, the people at the state government will surely not let this source of income go so easily.

There are also 'rumours' that the state governments intend to cease to refund local producers via the entertainment tax rebate incentive. Without this tax rebate, it is really hard for local film producers to survive, and it is already very hard now that the tax rebate takes so long to come back to the producer.

In any case, if they were to abolish the entertainment tax and impose GST instead, the party that is to gain is actually the cinema operators, not the producers, assuming that they are still getting their tax rebates. Some sort of arrangement will need to be made to keep the balance intact.

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