Budget fever is setting in, and the Indian broadcasting industry is ready with its wish list for Budget 2008-09. An Indian Broadcasting Foundation (IBF) delegation met senior officials of the Finance Ministry on February 19 and submitted a pre-Budget memorandum to the Ministry, wherein it has taken up various points critical to the broadcasting industry.
Exemption from Service Tax
One of the key points made is regarding service tax. The IBF has presented a case seeking exemption from service tax, as is the case in the print industry. The IBF has pointed out that the private Indian broadcasting industry is still at a nascent stage and is, therefore, “not in a position to take the burden of service tax”.
The IBF has highlighted the “discrimination against broadcasting media, which has not been removed inspite of our repeated representations”. The broadcasters’ body has drawn a comparison that though the print advertising revenues are at Rs 9,000 crore while for television it is only Rs 7,400 crore, there is no service tax on the print industry.
Further explaining its point, the IBF has said that the Indian broadcasting industry is witnessing rapid growth and imposition of service tax would discourage future investment into the broadcasting sector. It has also pointed out that advertisers are now diverting funds from advertising to sales promotion, including using other emerging media, which is badly affecting the channels, particularly the free-to-air (FTA) channels since their only source of income is advertising.
The IBF further stated that service tax pulls down consumption and hence, economic growth, and that investment in advertising and brand building in India is one of the lowest in the world, either on per capita or as proportion of total the GDP. Lower consumption means lower overall tax revenues. Service tax puts new Indian and foreign investors at a disadvantage, the IBF said.
Encourage set-top boxes by tax exemption, and enable digitisation
Making a case that the TRAI Act has been amended, the Government through a notification dated January 9, 2004, expanded the scope of the definition ‘telecommunication services’ to include the ‘broadcasting and cable services’, IBF has argued that “the incentives and concessions granted to the IT sector, should be ipso facto extended to broadcasting/cable services also, and this may find a mention in all relevant notifications/circulars. For example, as of now, Custom Duty+CVD+Cess for broadcast equipment is 36.64 per cent, whereas it is only 21.32 per cent for computers and 4 per cent for cell phones”.
Another point raised is that of customs/excise duty on set-top boxes (STBs). The IBF has recommended that the Government exempt CVD, cess charges and additional duty on STBs for the next 10 years. It said that this will help in implementation of addressable systems, bring transparency in business and lead to higher revenue for the Government by way of taxes. The IBF is also seeking exemption from excise duty for a period of 10 years.
The IBF has also recommended encouraging digitisation of cable television, and in order to enable cable operators to invest in infrastructure for achieving time bound digitalisation, a ‘National Fund’ be created to provide soft loans, etc.
The Cable Operator issue
The IBF has also brought to the fore problems of under-declaration by cable operators. It has said in the memorandum that the last mile cable operators highly under-declare the number of subscribers, which not only means loss of revenue to broadcasters but also to the Government by way of non-payment of taxes such as service tax, entertainment tax, sales tax and so on.
The IBF also pointed out that vide notification 6/2005 dated March 1, 2005, the Government has granted exemption to service providers (small cable operators), whose aggregate value of taxable service for a financial year does not exceed Rs 4 lakh. The IBF has recommended that service tax authorities be asked to launch periodic campaigns to ensure that all last mile cable operators are registered and display their registration certificates prominently.
In view of the prevailing situation where most cable operators claim ‘exemptions’, the IBF has requested the issue of the relevant clarification/direction to the service tax authorities that exemption granted is only in respect of service tax payable on services provided and does not extend to service tax charged on services procured by cable operators.
Some of the other recommendations that the IBF has made include the definition of ‘Industrial Undertaking’ under Section 72A of the Income Tax Act, 1961, be expanded to include electronic media, that is, TV Broadcasting. The IBF has also appealed to the Finance Ministry that apart from service tax, the States are also imposing high entertainment tax, sales tax, stamp duties and so on. The base of the Fringe Benefit Tax for the broadcasting industry has been kept at 20 per cent, whereas the base for six industries, including computer software industry, is only 5 per cent.
The IBF has hence also recommended that in view of the fact that broadcasting is included as a ‘service’ in the Constitution of India, governments in the States/Union Territories may be directed not to levy entertainment tax, sales tax, etc. on the broadcasting industry inclusive of distribution services.