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Budget'11: Proposals impacting M&E industry

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Budget'11: Proposals impacting M&E industry

The Union Budget 2011 doesn’t have too many sops for the media and entertainment (M&E) industry. PricewaterhouseCoopers (PwC) has presented a snapshot of the Budget proposals that impact the M&E industry.

Industry Overview:
The Indian entertainment and media industry stood at Rs 580.8 billion in 2009. The industry is expected to grow cumulatively at a CAGR of 12.4 per cent for the next five years to reach Rs 1,040 billion in 2014.

The industry continues to be dominated by TV, print and filmed entertainment.

Emerging segments – Internet advertising, animation and gaming and VFX, OOH and radio – are expected to grow at a faster pace.

The two primary driving factors for the industry include – industry initiatives such as digitalisation and regionalisation, and consumer behaviour and mobility.

Key developments:
• Rebound in advertising spend
• Music royalty dispute between FM broadcasters and music companies settled
• Digitalisation catching speed
• Uplinking and downlinking policy issues under review by TRAI and MIB

Budget Wishlist
The M&E industry had a long Budget wishlist, broadly divided into Direct Tax and Indirect Tax.

Direct Tax:
• The criteria of 90 days under Rule 9A and 9B should be either reduced or removed, as most of the films have a shelf life of less than 2-3 weeks

• Clarification allowing inclusions of all direct revenue streams (like music/ satellite/ home video rights) along with theatrical distribution/ exhibition rights should be introduced under Rule 9A and 9B

• To provide a 10-year tax holiday on gaming, animation and the VFX (visual effects) industry for Indian content (IP) as they are emerging sectors

• Service sector companies should also be allowed to claim benefits of the provisions of section 72A

• Signing of more co-production treaties to get tax credits and subsidy benefits. Proposal to Government should be made for support on international co-productions

Indirect Tax:
• Exemption from customs duty on import of equipment and hardware for film production

• Exemption from Service Tax to studios developing original content

• Dual levy of VAT and Service Tax on copyrights to be resolved

• Removal of Customs and Excise duty on imported equipment, set-top boxes and hardware for the DTH sector

• Streamlining FDI caps in carriage services such as DTH, cable operators, MSOs, etc.

Budget - Proposed Amendments
Following are the Finance Minister’s Budget proposals for this industry:

Direct Tax:
• Assurance to implement DTC by 1 April, 2012

• Profits and gains from existing hotels (2-star category and above) would be entitled to offset losses from new hotels with retrospective effect from 1 April, 2010

• Surcharge reduced to 5 per cent for domestic companies and 2 per cent for foreign companies

• Concessional rate of tax of 15 per cent on dividends received from foreign subsidiary companies; no deduction for expenses

• Base rate of MAT raised from 18 per cent to 18.50 per cent

• MAT of 18.5 per cent introduced for LLP, SEZ Units and SEZ Developers

Indirect Tax:
• Customs duty and service tax remains unchanged

• Concessional Basic Customs Duty and CVD of 5 per cent extended to mailroom equipment

• Colour, unexposed cinematographic films in jumbo rolls of 400 ft and 1000 ft exempted from Central Excise duty and CVD

• Excise duty levied on recorded Audio Cassette/ CD/ DVD at the rate of 1 per cent (without CENVAT credit)/ 5 per cent (with CENVAT credit)

• Services by air-conditioned restaurants having license to serve liquor liable to service tax

• Short term stay in hotels/ inns/ clubs / guest houses, etc., liable to service tax

Also read:
Budget'11: Largely neutral for telecom and IT

Budget'11: No respite for DTH industry


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