Amusement park players seek lower GST rate

The central government's decision to club the Indian amusement and theme park industry at the highest bracket of 28% under goods and services tax (GST) regime will significantly impact business viability for players.

The very existence of this industry, according to the Indian Association of Amusement Parks and Industries (IAAPI), is at stake.

The new taxation, IAAPI office bearers said, unfairly equates the sector with casinos, betting and race courses while overlooking the industry's role in creating social infrastructure and attracting tourism.

Speaking with DNA Money, Ashok Goel, director, IAAPI, said, "We believe this is an anomaly and not intentional to group us into the luxury bracket. We urge the regulators to reconsider the amusement and theme park industry under a lower tax bracket of 12% to 18%."

Two years ago, the industry was subjected to an additional burden of service tax – it was earlier in the negative list – while already paying 15% in entertainment tax (in Maharashtra). With margins of around 7% to 8%, the industry players believe they are not in a position to charge the customers beyond a certain point as the industry is very price sensitive. As a result, any higher incidence of tax will have to be absorbed by amusement and theme park owners by taking a hit on profit.

While older facilities, IAAPI said, could be registering profits at PBT (profit before tax) level, the newer units are still far away from recovering their costs. Besides, the advent of service tax has not only slowed down growth but has also impacted investments. Accordingly, investment is down to between Rs 200 crore and Rs 300 crore annually over the past two years as compared to Rs 1,700 to 1,800 crore prior to the introduction of service tax.

Goel, who is also a director at Pan India Paryatan Pvt Ltd that owns and operates amusement and theme parks under the brand Essel World and Water Kingdom, said the amusement and theme park industry will also not benefit much from input tax credit/set-off under GST. "Unlike the manufacturing sector, we don't consume raw material but only avail various services for operations and upkeep of our parks. Even if we discount the input tax credit of 2% to 3%, an effective tax rate of around 25-26% is very high for the industry, which is starting to see negative growth," said Goel adding that the industry body is trying to make a representation at the GST Council meeting on June 3, 2017.

With 145 amusement, theme, water parks and family entertainment centres across India currently, the industry has seen investments of around Rs 9,000 crore so far. Maharashtra with 45 facilities has contributed approximately Rs 3,000 crore. Each centre in the country calls for an investment of between Rs 100 crore and Rs 700 crore, excluding land cost, depending on the size and location. The business to breakeven takes anything between eight to 10 years at the least. The industry is also among highest employment generators with an employee cost of around 35% of total revenue for every centre while creating direct and indirect employment for approximately 1,000 people.

Rajen Shah, past president and chairman – training committee, IAAPI and, managing director, Arihant Industrial Corporation, said the amusement and theme park industry contributes significantly towards family bonding and should be looked at from a social infrastructure point of view. "Removing the amusement industry from the casinos, betting and racecourse category and moving it into the tourism segment will serve the purpose for the industry players," said Shah.

Globally, in markets where GST has been introduced, tourism rate has been kept at half of the GST rate and in most cases, it is under 10%. The rate in Australia is 10%, Singapore 7%, Japan 5%, Malaysia 6% and so on. This approach, according to IAAPI, stimulates tourism on one hand while also creating an economic multiplier effect on gross domestic product, thereby creating business opportunities across multiple sectors such as hospitality, food & beverage and transport.