The State government expects to raise Rs.150 crore annually from entertainment tax on direct-to-home (DTH) services and matches in the Indian Premier League (IPL) and the doubling of tax on feature films.

While bringing DTH under the entertainment tax net is likely to yield about Rs.75 crore, IPL may contribute Rs.18 crore to the exchequer, official sources say.

Regarding entertainment tax on films, the government recently modified the previous regime's policy of giving exemption from the levy for any film with a Tamil title. The concession will be available only to films free from violence and obscenity, according to the present regime's formulation. The removal of the blanket exemption for films with Tamil titles may yield up to Rs.60 crore, officials say.

The Film and Television Producers Guild of South India has said that the hike in entertainment tax on cinematography films on theatrical exhibition has come as a rude shock to the Tamil film industry.

This blow is intolerable for small and medium budget film producers, the guild stated in a release here. The season of festivals is approaching. At a time when producers are eagerly awaiting to screen their films, the increase in entertainment tax would ruin their hopes. The organisation has requested the Chief Minister to withdraw the hike.

Representatives of the film industry say the increase in entertainment tax will affect the entire industry. “Processes in the film industry are closely linked, and if there is a financial burden on one process, the effect can be felt everywhere,” says a theatre owner.

However, some see hope in the fact that the exemption has not been totally scrapped. Films found to be of good quality, without undue violence or sex, are still eligible for being declared tax-free, points out an industry source. “Perhaps, this initiative can be seen as one to encourage quality films.”

The industry has been demanding the removal of a cap on ticket charges introduced in 2007. Last month, the Tamil Nadu Cinema Theatre Owners' Federation urged the government to permit more flexibility in the pricing of tickets. At present, theatres can charge up to a maximum of Rs.120 a ticket.

The ceiling was fixed after it was found that theatres jacked up prices to exorbitant levels on the first few days whenever blockbusters were released, depending on demand and star value. The demand to remove this cap may be revived if the hike in entertainment tax begins to hurt the industry, the sources say.

The levy of entertainment tax on DTH has come as no surprise to the industry as other States, too, have brought direct-to-home services under the ambit of local taxes on entertainment. However, there is some disappointment that this has come three years after the State had fully exempted cable television services from payment of entertainment tax with effect from April 1, 2008. To them, a distinction has been made solely on the basis of the system of delivery.

The DTH industry has gone to court in other States against the same tax, but has so far not been successful. As recently as September 5, the Delhi High Court upheld the entertainment tax imposed by the Delhi government on DTH services.

A key argument of the DTH sector is that the operators pay service tax for providing signals directly to homes, and the same service cannot be taxed in the name of ‘entertainment' by States.

“It is the entertainment derived from the content that is the subject matter of the tax under the said Act and not the service of enabling the flow of content through the DTH system. There is no scope of confusing one for the other,” observed the Delhi High Court while upholding entertainment tax.

Cable operators see the decision to tax DTH in the backdrop of the State government's keenness to promote the operations of Arasu Cable TV, a State-run provider of cable signals, which was revived recently.