The Budget proposal have come as a blow for private television companies which were enjoying benefits under the guise of Foreign Telecasting Companies (FTCs). Benefiting for years from the presumptive profit and taxation provision, TV companies like Zee, Star, SET, Discovery, ESPN Asia, BBC and Eighteen Entertainment India Pvt. Ltd., are now set to lose the protection benefits and be brought on par with domestic telecasting companies.
Industry sources say that FTCs have already been paying a presumptive tax but will have to pay more now with this announcement. The ``presumptive profit'' provision was worked out in 1996 for FTCs to give them tax relief, keeping in view the fact that they were making losses in global operations and it was a new line of business for them. However, the government has now clearly decided to put an end to what was a discriminatory practice.
The presumptive profit for FTCs is taxed at the normal rate but the total amount of tax works out to be marginal because of the way their profits are calculated. For example, the rate of taxation between 1995-96and 1997-98 was 55 per cent and from 1998-99 onwards it was 48 per cent. But the effective tax-rate for FTCs worked out to just 3.8 per cent during1995-96 and 1997-98 and 3.36 per cent for 1998-99 onwards, because of the 10 per cent ``presumptive profit'' criterion.
Domestic telecasting companies thus pay a much higher tax based on their actual earnings. With Mr. Yashwant Sinha's announcement to bring the FTCs on par with Indian companies the government has withdrawn the sop. Given that FTCs have paid a total of only Rs 71.21 crore as income tax during the past four assessment years-government should now see a spurt of revenues from broadcasters.