First to emerge from this tax rulebook will be a new trend. That of FTCs turning their back on their foreign lineage. Zee Telefilms is already working in that direction. The company already has the infrastructure in place to transfer all its broadcasting operations to India. The objective, obviously, is to pay a lower tax (38 per cent) as an Indian company, against a much higher 48 per cent as an FTC. This is a complete turnaround from the days when Indian TV companies were trying to register as FTCs to derive the benefits of the presumptive tax clause.
New I-T norms for FTCs: Govt hopes to fill coffers; broadcasters sceptical. For instance, Mr Kiran Karnik, Managing Director, Discovery Communications, says that it's only the profit-making companies, which will have to pay the tax. And at present, there are about two to three FTCs which are making profit.
The new rule is correct in principle, but difficult to implement, he says. For instance, it will be hard to define profitability as per the new rule and many companies may evade tax. As a result, the government may not gain much out of the new norm.
The government would collect over Rs 2,000 crore as income-tax from the channels in the next five years after the revised rules. But what is significant about the new IT norm is that a system will be in place from now on. More importantly, many of the FTCs, which were not filing regular I-T returns, will be forced to do that now.
To put things in prespective, FTCs were till now being taxed on a presumed profit of 10 per cent on their remittance abroad. The remittance excluded the payment made by the FTC to their Indian agents and advertising agencies, which worked out to 30 per cent of the total earnings. The 10 per cent of the remittance was considered as a reasonable profit for FTCs in their initial years of operations. FTCs had made a representation to the Central Board of Direct Taxes (CBDT) in 1996 regarding their tax liability, after which CBDT issued a circular on presumptive taxation. However, this year's Union Budget put an end to the presumptive taxation system for FTCs.