GST rates for licensing content rights, printing services of recorded media hiked to 18%

The Goods and Services Tax (GST) Council at the 45th meeting has recommended increasing GST rates on licensing services/ the right to broadcast and show original films, sound recordings, Radio and Television programmes, and printing & reproduction services of recorded media where content is supplied by the publisher to 18% from the existing 12%.

The decision to levy 18% GST on licensing services/ the right to broadcast and show original films, sound recordings, Radio, and Television programmes is to bring parity between distribution and licencing services.

Likewise, the council has upped the GST rate for printing and reproduction services of recorded media where content is supplied by the publisher to 18% to bring it on parity with colour printing of images from film or digital media.

In a blog, Hiregange & Associates Partner Shilpi Jain deciphered the proposed increase in the rate of GST to 18% in relation to the licensing services to broadcast and show original films, sound recordings, radio, and television programmes.

She noted that the producer of a film who owns the intellectual property rights in the film transfers this copyright to the distributor. He then in turn enters into agreements to enable the exhibition of this work. This can be done either by way of a Option 1) Further assignment of the rights that the distributor has received from the producer, whereby the distribution rights in the work are transferred to the exhibitor or sub distributor, or Option 2) Leasing the exhibition / distribution rights for a certain period whereby these rights are still retained by the distributor which is only leased for a certain period.

Shilpi further stated that licensing services are those where the owner of the rights in the specified works, assigns it to another person (Option 1). Under this arrangement the important aspect is that the assignor owns the rights, which he has either received from someone else by way of an assignment or could be his own generated rights, and in the process of this assignment, such assignor gives away his rights to the assignee. This can be perpetual or for a specified period.

This when contrasted with merely leasing the rights to exhibit, these rights are not transferred by the owner, but the assignee is only given the right to exhibit the films or programmes. The assignor still owns the rights in the work. This is generally done by way of a lease.

The two contending service classification codes and the rates of GST are: HSN 997332 - Licensing services for the right to broadcast and show original films, sound recordings, radio and television programme etc. – 12% - for Option 1, and HSN 999614 - Motion picture, videotape and television programme distribution services – 18% - for Option 2.

"Due to the above difference in rates of tax, many of the exhibition agreements were entered as licensing agreements wherein the distributors (assignor), instead of leasing the exhibition or distribution rights, have assigned such rights to the exhibitors or sub-distributors (assignee) for a certain period. Thereby charging GST @ 12% for these agreements. Commercially speaking, by entering into these licensing agreements the distributors have actually given away their exhibition or distribution rights to the assignee for the agreed period," the blog reads.

In order to ensure that the government gets its share of revenue for the services provided by the distributor, whether by way of leasing or licensing, it has been thought fit (in the 45th GST Council Meeting) to amend the rate of tax for the HSN 997332 to match it with that of HSN 999614 i.e. 18% and thereby making classification an aspect which will not be relevant at all w.e.f. 1st Oct ‘21, Shilpi noted.

Further, she stated that this will lead to all licensing arrangements to broadcast/to show the original films, sound recordings, radio and television programmes, between the producer and the distributor liable @ 18% which was hitherto only 12%. Though, this is only a proposed amendment, and it would be suggested to await the notification, from which the effective date of change will also become evident, she added.

According to her, the change in GST rate for the above services will also bring hope for the industry where it is clear now that the licensing arrangement by the distributors prior to the above rate change would be liable @ 12% only. Another interesting aspect would be to look at the deliberations in the GST Council in this matter to give more clarity and strength to this view, she stated.

"Thereby, the distributors can consider paying GST @ 12% for the period before this amendment becomes effective in cases where the distribution rights are assigned and not merely leased, irrespective of whether the consideration is fixed or a revenue/profit share. Hence for agreements entered, the parties can ensure that invoice is issued, before the rate of tax increases, to the extent of payment received or service provided to ensure that 12% is liable and not the 18% post the amendment, in terms of the time of supply provision u/s 14 of the CGST Act, 2017," Shilpi said.