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The Maharashtra State Budget proposes abolishment of 4% VAT on transfer of copyrights of
films. Separately, the Rajasthan Government proposes removal of 30% E-tax on tickets
priced below Rs50. We see tax rationalisation as a structural driver for profitability.
Maharashtra State proposes VAT exemption for transfer of film copyrights
The Maharashtra Government had issued a notification in 2005, whereby entities leasing
copyrights of cinematographic films were required to pay VAT at the rate of 4%.
The Maharashtra State Budget presented yesterday proposed the exemption of tax on
VAT on film copyrights.
Industry players had accounted this as contingent liabilities pending resolution
Industry bodies represented this as an onerous levy and had represented to the State
Government to abolish this tax.
Pending resolution, Eros had provided for Rs124m as contingent liability in respect of
VAT and CST on sales/lease of copyrights under the Maharashtra VAT Act at the end of
1QFY11.
Similarly UTV had provided for Rs89m in contingent liabilities at the end of FY10.
Separately, the Rajasthan Govt proposes removal of E-tax on low priced tickets
The Rajasthan State Budget has proposed abolition of the 30% entertainment tax for theatres
where tickets are priced below Rs50 and the films are certified 'U' by the Censor Board.
We believe this would mean most of the single screens would now be exempt from
entertainment taxes.
We estimate Rajastan accounts for 6-7% of box office proceeds for Hindi films.
We believe this should translate into c1% lower entertainment taxes as a percentage of PBT
for Eros.
Tax rationalisation is a structural driver, the big kicker could come from GST
The proposal for abolition of VAT should remove a considerable overhang from the financials.
Given our estimates for domestic box office collections, we believe the VAT levy would have
dragged PBT by 5% if were to be upheld.
The Rajasthan E-tax levy removal will have a c1% positive impact on PBT, assuming that
lower taxation is not passed on. However, given that the state government's move is
motivated at making movie viewing more affordable, this will be likely passed on to the
consumer.
We believe structural reduction of heavy taxation on the industry is a long-term catalyst for
higher profitability/volume growth. If higher entertainment tax (we estimate c28% on a national
basis) is subsumed under GST, this could come down materially.
The stock currently trades at 7.6x FY12F EPS versus our forecast EPS CAGR of 26% over
FY11-13.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Maharashtra State Budget proposes abolishment of 4% VAT on transfer of copyrights of
films. Separately, the Rajasthan Government proposes removal of 30% E-tax on tickets
priced below Rs50. We see tax rationalisation as a structural driver for profitability.
Maharashtra State proposes VAT exemption for transfer of film copyrights
The Maharashtra Government had issued a notification in 2005, whereby entities leasing
copyrights of cinematographic films were required to pay VAT at the rate of 4%.
The Maharashtra State Budget presented yesterday proposed the exemption of tax on
VAT on film copyrights.
Industry players had accounted this as contingent liabilities pending resolution
Industry bodies represented this as an onerous levy and had represented to the State
Government to abolish this tax.
Pending resolution, Eros had provided for Rs124m as contingent liability in respect of
VAT and CST on sales/lease of copyrights under the Maharashtra VAT Act at the end of
1QFY11.
Similarly UTV had provided for Rs89m in contingent liabilities at the end of FY10.
Separately, the Rajasthan Govt proposes removal of E-tax on low priced tickets
The Rajasthan State Budget has proposed abolition of the 30% entertainment tax for theatres
where tickets are priced below Rs50 and the films are certified 'U' by the Censor Board.
We believe this would mean most of the single screens would now be exempt from
entertainment taxes.
We estimate Rajastan accounts for 6-7% of box office proceeds for Hindi films.
We believe this should translate into c1% lower entertainment taxes as a percentage of PBT
for Eros.
Tax rationalisation is a structural driver, the big kicker could come from GST
The proposal for abolition of VAT should remove a considerable overhang from the financials.
Given our estimates for domestic box office collections, we believe the VAT levy would have
dragged PBT by 5% if were to be upheld.
The Rajasthan E-tax levy removal will have a c1% positive impact on PBT, assuming that
lower taxation is not passed on. However, given that the state government's move is
motivated at making movie viewing more affordable, this will be likely passed on to the
consumer.
We believe structural reduction of heavy taxation on the industry is a long-term catalyst for
higher profitability/volume growth. If higher entertainment tax (we estimate c28% on a national
basis) is subsumed under GST, this could come down materially.
The stock currently trades at 7.6x FY12F EPS versus our forecast EPS CAGR of 26% over
FY11-13.
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