With the increasing trend of Bollywood filmmakers shooting their flicks in Britain to avail subsidy, finance ministry advisors have called for examining the possibility of giving such incentives to the Rs 96,000-crore domestic entertainment industry.
Or else, the government should take up the matter with the World Trade Organisation, says a report authored by finance ministry senior economic advisor HAC Prasad and additional economic advisor R Sathish.
The report titled 'Policy for India's Services Sector', says Britain provides tax subsidy to movies which is disguised in the name of tax credit.
When contacted Prasad said, "Britain gives 25 per cent tax credit for films--25 per cent of expenditure of budget of a film is rebated (though subject to a limit). This is actually a subsidy and not a tax credit. But it is disguised as tax credit."
This type of subsidy given by Britain led to investment in film production there, while India does not give such benefits, he pointed out.
"Many of our film producers make films in Britain to avail of this benefit and show only a part of their work from India where there is no benefit and taxes are high," he said.
The report further says there is a need to examine if our government can give these tax credits as it can gain from huge investments along with multiplier effects, while usual taxes can continue.
"If not, this should be raised at the WTO as there is an unfair advantage for these services in some countries due to these subsidies," it said.
The report says Germany, Hungary, New Zealand and American cities such as Los Angeles and Michigan also give similar subsidies. In fact, "Canada gives 50 per cent of labour costs as tax credit," it said.
However, the report clarifies that views contained in the report are those of authors and not the finance ministry.
Some portions of recent films like Love Aaj Kal, Veer and Paa were shot in Britain.
Recently, the film industry ruged the finance minister to remove the service tax on them as they are already burdened by VAT and now service tax will harm them. The budget 2011 has brought the copyright on recording of cinematographic films and sound recordings under taxable category of intellectual property rights.
