The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday said he could not allow Galleria Cinemas’ assertion that Value-Added Tax (VAT) was responsible for a 17.6 per cent increase in its prices “go unchallenged”.

John Rolle, its financial secretary, expressed “surprise” that Galleria’s president, Chris Mortimer, would seek to blame the extent of the increase in movie ticket prices on VAT and related costs.

He explained that all VAT paid on a business’s operating costs could be claimed back as a tax credit, or netted off against the tax paid on its outputs.

“We are surprised that Gallerias would attribute a 17.6 per cent increase in prices to VAT,” Mr Rolle said in a statement.

“The cinemas should be aware that, as a VAT registrant, every cent of VAT paid on operating costs would be deductible as VAT credits.”

He then added: “Statements of this nature cannot go unchallenged, as they distort the impact of the reform. Supplier costs should not have risen to such extent pre-VAT. If the cinema’s reaction is in anticipation of post-VAT changes then it also mis-reads the fact that most, if not all, of the cinema’s suppliers would be VAT registrants who issue VAT invoices that can be used to justify credits claims.”

Mr Mortimer, who is also the Democratic National Alliance’s (DNA) leader, had blamed “electricity costs,” “accounting costs” and “supplier price” increases for having to increase Galleria’s movie ticket prices beyond the 7.5 per cent hike caused by VAT.

He said all these production inputs had increased because of VAT, reflecting Galleria’s “compliance with VAT and the significant operational expenditures that are directly tied to it.”

“Electricity costs alone are up 150 per cent pre-VAT. Accounting costs are up 100 per cent because of VAT. Supplier prices are all up,” Mr Mortimer added.

Yet VAT paid by Galleria on these costs can either be claimed back, or ‘netted off’ against ‘output’ tax payments, as Mr Rolle suggested.

Galleria’s ticket prices increased from $8.50 to $10 for adults (an increase of 17.6 per cent), and from $4.50 to $5 for children (an extra 11 per cent). Senior citizens will now pay $9.

Some consumers questioned why they were being charged $10 for an adult ticket when 7.5 per cent of $8.50 is $0.64, bringing what should be the VAT-inclusive price to $9.14.

VAT at 7.5 per cent on a children’s ticket would amount to $0.34, bringing the VAT-inclusive price to $4.84.

The extent of Galleria’s price increases also caught the attention of E. J. Bowe, the Price Control Commission’s chairman, who branded them “outrageous” - sparking a sharp response from Mr Mortimer.

Noting that movie tickets did not come under Mr Bowe’s remit, and suggesting he did not understand the industry, Mr Mortimer said: “Should he have asked, I would have taken the opportunity to inform him prior him giving credence to an incorrect perception of price gouging.”

Ignoring DVDs, video on demand and such like, Galleria has effectively had a monopoly on the movie theatre business since 2003, when it acquired rival RND Holdings, rescuing it from financial distress.