Entertainment tax cuts in Delhi to benefit PVR

Margins could get a boost

BL Research Bureau

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The Delhi Government's move to reduce the entertainment tax on cinema to 20 per cent from 30 per cent earlier will benefit multiplexes in the city. PVR, in particular, which has a dominant screen presence in Delhi, will stand to gain.

Although the move has been made to prompt multiplexes to lower ticket prices, we expect PVR to largely maintain prices at its multiplexes, which target upscale audiences. Lower entertainment tax incidence, as a result of this development, may help boost PVR's operating margins.

Entertainment tax takes away a proportion of gross ticket sales for multiplex operators. In order to encourage investment in multiplexes, many States exempt multiplexes from the tax, if they meet certain conditions such as offering certain number of tickets at a low entry price or screen regional films, for instance. Multiplex chains, too, have begun to target these States for their expansion, to avail of the exemption.

Lower incidence

Multiplexes in the Delhi and NCR region are not, however, entitled to such an exemption and the tax rate was steep, at 30 per cent. PVR, which has several multiplexes in the region, has, therefore, traditionally borne a higher entertainment tax incidence compared with its peers. About 25 per cent of its screens are still located in Delhi, even after a rapid addition of properties.

Barring the NCR region and one or two other properties, however, almost all PVR screens now enjoy an entertainment tax exemption. As a result, the entertainment tax incidence has been on a decline and now accounts for 17 per cent of ticket sales for the company in FY-08 from 20 per cent in FY-07. Margins have also been on the rise as a result. With the lower entertainment tax outgo for the Delhi properties as well, the incidence is likely to decline further and give margins a boost.