Cinemas are a source of entertainment for the general public and they are a very popular destination even on weekdays. Punjab government recently slapped an Entertainment Tax of 65% on all ticket sales. Why would they do such a thing? Let’s take a look at what is actually happening behind the scenes.
A Brief History of Cinema as a Business
Cinemas used to do very well in Pakistan in the 70s, 80s and even 90s. Back then, cinemas weren’t taxed heavily and were a profitable business. But as the standard of movies went down, cinema numbers shrunk. Despite the poor returns and losses from most cinemas, a certain number of cinemas remained profitable across Punjab and Sindh and continued to operate.
Corrupt Politicians Use Cinemas to Launder Black Money
Sources claim that cinemas have been used to convert black money to white, i.e. money made off corruption can be shown as legal by faking profits.
Back in 2006, the government waved off all taxes from the cinema industry which had been on a decline ever since the 90s (A coincidence? Possibly). After Musharraf’s take over, cinemas declined and only a few remained – nearly 20 in Punjab.
The Effects of Tax-Free Cinema
When these taxes were waived off, it made the cinema industry the best investment to legalize black money. Immediately after the government change, films started to make a comeback and even the screening of Indian movies was unbanned. Both these decisions made cinemas an even better proposition for both money launderers and businessmen.
The cinema industry saw a sharp rise and public cinemas increased from nearly 20 to over 125 in Punjab alone. A similar scenario was witnessed in Sindh as well.
What Really Happened Behind the Scenes
While a politician has almost never been prosecuted successfully over corruption, it is a well-known fact that this menace exists in Pakistan’s leadership and governments. Sources claim that most of these new and old cinemas are owned by politicians, especially from Sindh.
Money Launderers Were Able to Fake Attendance & Launder 100% of the Black Money Tax-Free
These corrupt officials have been legalizing their black money by reporting very high attendances at their cinemas even when the occupancy was low. This allows them to show the black money as profits and legally attribute it to themselves.
And since there was no tax on cinemas up until now, it gave the owners a chance to legalize 100% of their black money.
The Importance of This Tax
Punjab’s implementation of this tax is a good move no matter the real intentions behind it. By implementing such a high tax of 65%, the Punjab government has sent a message to the owners that a big chunk of their money would be taxed if they intend to use this means as a money laundering setup.
The expected result is that the cinema owners who were using this business in Punjab to launder money will now sell off their assets and look for other ways. This could cleanse an industry from fake and illegal usage.
An alternate would have been to employ inspectors who would visit cinemas and check the attendances themselves while also applying a small tax on the cinema sales. This would have helped in preventing money laundering as well as brought justified tax to the national exchequer. In the government’s preferred method, customers are going to end up as the most affected party which is highly unfair.
The tax will hurt the general public of Punjab as huge sums will be retrieved as tax. The general cinema visitor can expect to pay at least Rs. 325 above normal ticket prices summing up to Rs. 825.
The Entertainment Tax is here to stay for the time being even if it hurts the industry or the general public. The overall benefits of this step in halting money laundering operations can go a long way if the same strategy s employed by other provinces, especially Sindh, as well.