GST, THE NEW BANE OF ART MARKET’S EXISTENCE

September 15, 2017

 

By Georgina Maddox

What ails the art market? We decided to get opinions and shed some light on the inner workings of what had once been a glamourous and thriving industry.  

One may ponder why the capital has seen many of its galleries shut down while others have down-sized their operations. The primary market of galleries and artists who sell from their studios,are reporting a massive slowing down of sales. Artist Jogen Chowdhury is circulating a petition and signature campaign. That reads: “Art and GST: Dancers, musicians and actors are exempted from GST – why not artists?” The campaign has accrued only 506 signatures so far.

Meanwhile the auction houses are the only ones open for business. Even here it is quite evident that the market is quite a speculative one. We often see that the same works get recycled between buyers and speculators in a short period. Christie’s Art Auction pulled out its investment in the Indian art market as soon as GST became affective. Some auction houses, have gone off the record to say that while it takes a second to raise a paddle and bid, it often takes months to recover all the of the funds from the buyers.

What ails the art market? It is the question on everyone’s lips these days.

After demonetisation, in November 2016, there was a huge art market slow down, since many collectors prefer a cash-cheque split. When all the big notes were called in this put paid to that practice. This was quickly followed by GST (Goods and Services Tax) in July 2017. GST has been broadly classified into four categories: 5%, 8% 12% and 28% with precious metals such as gold being taxed at a separate rate of just 3%. Clearly the gold and precious metals market is getting a shot in the arm, but the art market its seems is yet to see the benefits of the said tax.

“After demonetisation, it is the new tax on art and art goods that has brought the art market wheels to a complete halt,” says artist Satish Sharma who teaches at the Triveni Kala Sangam, New Delhi. With a studio in Triveni complex, Sharma has booked the Shridharani Gallery for an exhibition in November but is quite skeptical if he will have good sales. “Artists like myself will have to continue working at a second profession like teaching, since expecting sales from artwork appears moot at the moment,” opines the artist.

It is not just mid-career artists like Sharma who is affected by the government’s implementation of the GST. Renowned duo of artist-provocateurs Sumir Tagra and Jiten Thukral are not happy with the indiscriminate levying of taxes on art, either. “It appears that the government does not want to support culture,” says Tagra. By way of explanationTagra and Thukral break it down for us: “Over and above the 12 % GST that is to be charged on art,the government has enforced a 28% GST on the purchase of canvas and musical instruments,” says the Tagra in a joint statement. “If we are paying 28% GST on canvas, then our production costs automatically go up,” says Thukral. 

Additionally, the government has proposed an advanced tax of 12 % to 13 % GST, which is to be paid by the artist while shipping artworks for exhibitions to other states, within the country. “If the work is shown it does not always translate in sales, but this new tax now makes it hard for us to show works outside the Delhi-Gurugram area. Over and above this we pay 40% to 50% to the gallery for their share after sales. Finally, what is the artist left with as earnings?”point out the artists. With their works priced in lakhs, it may appear that works are earning a lot but if you do the math, the artist is usually left with less than half its sale price.

One may ask what is the motivation for the GST in the first place? It appears that the intention behind this move was to regularize the art market. The center means to dismantle state barriers and merge a variety of taxes into one, a ‘supposedly’ simple tax system. The benefits, we are told, is that it will bring down the tax for the consumer, making it a buyer’s market. However, this has yet to translate into an escalation of sales. Currently buyers are scared to venture into any luxury market since the tax on art has not made the overall cost on art come down, rather it has escalated. “All my collectors are confused about what is GST and which GST is applicable to the artwork they have purchased. Many of them prefer to wait till things settle down and then venture back into the market,” says Shekhar Jhamb, Director of Creativity Art Gallery, New Delhi. While collectors can wait it out, artists and galleries who depend on sales for their livelihood are finding it harder.

The belief however is that the new system will encourage traders and manufacturers to become registered companies as continuing to trade with this system in place will ensure transparency. It will discourage unregistered businesses. “The monitoring which comes with this system will drastically reduce tax evasion, and people will be encouraged to register with GST also. It will encourage proper billing through banking channels,” believes Sangeeta Gupta, the Chief Income Tax Commissioner of Delhi who also happens to be a visual artist, poet and filmmaker.

Renu Modi of Gallery Espace, however says that till the benefits of GST kicks in and more light has been thrown on the matter, the art market will remain under a cloud. “I have put all my other projects, like books and publications, research and welfare of the arts on hold for now. I am scared to invest my funds in other avenues since our livelihood is currently facing a massive slowdown,” says Modi who finds it harder each year to convince her collectors to invest in art.

When compared to China, which gave its art market a huge fillip by offering a 10-year tax holiday to its artists, India appears to be coming down hard on its art community. Artists and gallery owners are especially concerned that while the market for art continues to remain niche, this added expense on art may further shrink it. The art sector prior to this was completely exempt from VAT in some states including West Bengal and Rajasthan, both of which produce a large amount of art and craft. Gupta is of the opinion that GST is not applicable for folk and tribal art.

However, Gupta points out that if a painting is framed and sold in a five-star hotel it automatically falls into the luxury product bracket and incurs a luxury tax of 28%. This affects auction houses like Saffron Art that is housed its display gallery within a five-star hotel like The Claridges in Delhi. The gallery opened in 2016 with a solo by veteran artist Krishen Khanna. Notably Khanna is also not happy with the GST policy. “For years I have had to struggle as an artist. Working at a bank so that I can supplement my income and paint what I want. Now suddenly the government wants a share of my hard-earned labor of love? I refuse to sell my artwork under these conditions. Let my children inherit my legacy,” said the artist when we visited his studio in the month of July. Gaurav Bhatia the MD of Sotheby’s India is the voice of optimism in this dark picture. “Great art always finds a home irrespective of market conditions. Economic conditions can be small bumps, but eventually quality art and solid provenance will always find a buyer,” he says.

It is good to be optimistic since most of the established galleries are holding out and hoping the fog around GST will clear. Meanwhile the government better sit up and take notice that the art sector is clearly not happy with its reforms.


A Work by Subodh Gupta in NGMA Delhi