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Budget'11: Rationalise Goods & Services Tax – Broadcasters

25-February-2011
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Budget'11:  Rationalise Goods & Services Tax – Broadcasters

Along with the rest of the country, broadcasters, too, have a list of expectations from the Union Budget 2011, which will be presented in Parliament on February 28, 2011. Broadcasters have also highlighted their grievances as they point out the gaping holes in the current infrastructure for the industry. Comprehensive Goods and Service Tax features high on their priority list.

What broadcasters want
Commenting on the pulse of the nation at the moment, Joy Chakraborthy, Chief Revenue Officer, Zee Entertainment Enterprises Ltd & COO, Niche Channels, painted the current scenario. According to him, “A consistently high level of inflation and a string of governance issues that have come to light recently have led to disillusionment amongst the common man. In such a domestic backdrop, it is expected that the Budget would be a populist one, wherein the Government will put more money in the hands of the common man to combat the inflationary environment, as well as to create a ‘feel good’ factor.”

Coming specifically to the media industry, Chakraborthy listed his expectations and said, “Foreign direct investment (FDI) in the DTH and cable industry is expected to go up from 49 per cent to around 70 per cent. This can be a big boost for international media distributors to enter the country with controlling stakes, thereby playing a catalytic role in the corporatisation of this industry, which would result in greater transparency and increased subscription revenues. To drive digitisation, it is expected that the custom duty levied on imported set-top boxes would get abolished, coupled with reduction in license fee paid by the DTH and digital cable operators. Announcements on the Direct Tax Code (DTC) will be closely watched, for a whole lot of changes are expected in taxation, including that on capital gains. The Goods and Services Tax (GST) could be another game changer for several businesses, and will be anxiously looked out for.”

Major pain points
MK Anand, CEO, UTV Interactive, highlighted many pain points from the broadcasters’ lens. Speaking on carriage paid to MSOs and cable operators, he commented, “All broadcasters are deducting tax at 2 per cent, whereas Department is of the view that it should be at the rate of 10 per cent u/s 194 J as the same in nature in technical services. Broadcasters are of the view that carriage fees do not involve any technical work and is purely manual work. Carriage fees fall within Section 194 C and hence, the tax has been deducted as per the said section.”

Another point of concern was dual taxation on copyright. Anand elaborated, “Dual taxation (that is, Service Tax and VAT) on transfer of copyright in relation to cinematographic films is affecting the industry at large, and lack of clarity on the applicability of Service Tax and VAT on same transaction from the Government is fuelling speculations. It is envisaged that the clouds of dual taxation would be cleared post implementation of the comprehensive Goods and Service Tax (GST) by the Government.”

Anand further explained how in the meantime, the industry was left with levying both Service Tax and VAT on transfer of copyright in cinematographic films. Some industry players have challenged the constitutional validity of levying Service Tax under newly introduced service category of ‘Copyright Services’, whereas some are challenging applicability of VAT on the same. In the past, the media and entertainment industry has been struggling with regulators to get concessions or benefits. “With the upcoming Budget 2011, the industry expects the Government to come out with some clarification and clear the ambiguity on the above aspect. Also, the Indian Broadcasting Foundation (IBF), which represents the television industry, has told the Finance Ministry that the broadcasting sector should be included under ‘Industrial Undertaking’ as defined by Section 72A of the Income Tax Act, 1961,” Anand added.

Commenting on the issues involving Customs Duty and Service Tax, he said, “The IBF has suggested that the Government should exempt CVD, cess charges and additional duties on set-top boxes for the next 10 years. There should be no discrimination with the print media vis-à-vis Service Tax. Unlike print media companies, broadcasters are subjected to levy of service tax at 12.24 per cent. Hence, a reduction in Service Tax is needed. Broadcasters are seeking some rationalisation in the Service Tax charged on advertising revenue. The entire industry is waiting for the GST, where all taxes will be subsumed.”

Regarding foreign direct investment, he said, “Higher FDI in the broadcasting sector, particularly in direct-to-home (DTH) and cable network operators and FM radio, is expected.”
 

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