The Council of Goods and Services Tax (GST) recommended at the 45th meeting the GST rates for licensing services / the right to broadcast and show original films, sound recordings, radio and television programs, and printing and reproduction services of recorded media with content to be increased by the publisher to 18% from the previous 12% delivered.
The decision to charge 18% GST on licensing services / the right to broadcast and show original films, sound recordings, radio and television programs is intended to establish parity between distribution and licensing services.
Likewise, the Council has increased the GST rate for pre-recorded media printing and reproduction services, where the content is provided by the publisher, to 18% to equate it with color printing of images from films or digital media.
In a blog, Hiregange & Associates partner Shilpi Jain deciphered the proposed 18% increase in the GST rate for licensing services for the broadcast and showing of original films, sound recordings, radio and television programs.
It found that the producer of a film who owns the intellectual property rights in the film is transferring that copyright to the distributor. He then in turn concludes agreements to enable this work to be exhibited. This can be done either through an option 1) onward transfer of the rights that the lender has received from the producer, whereby the distribution rights to the work are transferred to the exhibitor or sub-distribution, or option 2) the leasing of the exhibition / distribution rights for a certain period of time, whereby this Rights remain with the sales partner who is only rented for a certain period of time.
Shilpi further stated that licensing services are those where the owner of the rights to the specified works transfers them to another person (option 1). It is important that the assignee has the rights that he has either received from another person by way of an assignment or that could be his own created rights, and in the course of this assignment his rights to the authorized representative. This can be for an indefinite period or for a specific period of time.
In contrast to the mere rental of the exhibition rights, these rights are not transferred by the owner, but the assignee is only granted the right to exhibit the films or programs. The assignee continues to own the rights to the work. This is usually done through a rental agreement.
The two competing service classification codes and the GST sets are: HSN 997332 – Licensing Services for the Right to Broadcast and Show Original Movies, Sound Recordings, Radio and Television Programs, etc. – 12% – for Option 1 and HSN 999614 – Motion Picture, Video Tape – and television program distribution services – 18% – for option 2.
“Due to the tax rate difference mentioned above, many of the exhibition contracts were concluded as license agreements in which the lenders (witnesses) held the exhibition or for a certain period of time. As a result, GST @ 12% is charged for these agreements. In commercial terms, with the conclusion of these license agreements, the distributors have given their display or distribution rights to the assignee for the agreed period of time, “says the blog.
To ensure that the state gets its share of the revenue for the services provided by the dealer, whether through leasing or licensing, it was (in the 45 997332 to match that of HSN 999614, i.e. 18%, and therefore the Making classification an aspect that won’t be relevant at all as of October 1, ’21, noted Shilpi.
She also stated that this will result in all licensing agreements for the broadcast / showing of the original films, sound recordings, radio and television programs between the producer and the distributor at 18%, down from only 12% so far. However, this is just a proposed change and it would be suggested to wait for the notification, which will also include the date the change will take effect, she added.
In her view, changing the GST rate for the above services will also bring hope to the industry as it is now clear that the merchants’ licensing agreement would only be 12% liable prior to the above rate change. Another interesting aspect would be to look at the deliberations in the GST Council on this issue to give that view more clarity and strength, she said.
“The sales partners can consider paying GST @ 12% for the period before this change comes into effect, if the distribution rights are assigned and not just leased, regardless of whether it is a fixed consideration or a share of sales / profits. Therefore, registered for agreements, the parties can ensure that the invoice is issued prior to the increase in the tax rate to the extent of the payment received or the service rendered to ensure that 12% and not the 18% after the change in relation to the date of delivery are liable to provision u / s 14 of the CGST Act of 2017, “said Shilpi.
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