Budget 2015: Eliminate entertainment tax as it hurts broadcasting sector

Budget 2015: Eliminate entertainment tax as it hurts broadcasting sector

FP Archives February 24, 2015, 21:12:51 IST

It is imperative that the entertainment tax be eliminated or at least the rate of tax be moderated.

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Budget 2015: Eliminate entertainment tax as it hurts broadcasting sector

Jehil Thakkar

Amid the slow growth of the economy, the Media and Entertainment (M&E) sector has shown resilience. The film sector has hit a new high with PK’s collections crossing $100 million at the box office worldwide.

Despite the perceived saturation in the broadcasting sector (with as many as 826 TV channel licenses granted to broadcasting companies), the sector has witnessed the launch of several new TV channels in recent times. With the government finally setting the ball rolling for the FM radio Phase III auctions, the floodgates have been opened up for launch of 135 radio channels across the country.

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Pinning hope on Budget. Reuters

One of the biggest beneficiaries of the impending digital revolution in India and the government’s avowed objective of providing broadband connectivity in every nook and corner of the country would be the M&E sector. However, the myriad taxes in various forms and multifarious statutory compliances are, to an extent, playing spoilsport for the M&E industry. As the finance minister rises to present the budget on 28 February, we hope that the following long outstanding demands of the M&E sector are addressed by him:

Entertainment Tax: High levy of entertainment tax ranging from 30 percent to 50 percent on exhibition of films in theatres and television exhibition by way of DTH/ cable has been acting as a dampener as it considerably enhances the cost of doing business. It is imperative that the entertainment tax be eliminated or at least the rate of tax be moderated.

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Double taxation: Licensing of copyright in content (other than for theatrical exhibition) is liable to ST as also VAT, thereby resulting in double taxation of the same transaction, which is against the basic tenets of law. In recent judicial pronouncements, it has been held that licensing of copyright for a temporary period is a service. Despite the same, tax authorities are also demanding VAT thereon. The Central government and state governments need to come together to address this issue of double levy of tax at the earliest.

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TDS on various payments: The TDS rate on payment for production of TV programs, carriage fees / placement charges, etc. has been a subject matter of immense controversy. The tax authorities have been contending that such payments are towards technical services / royalty liable for TDS @ 10 percent as against the tax payers’ view that such payments attract TDS @ 2 percent as they are consideration for `work’. The Mumbai Tribunal has ruled in favour of the taxpayers on this issue. A suitable clarification by the government to the effect that tax needs to be deducted @ 2 percent is much needed to avoid proliferation of litigation on the issue. A clarification to the effect that transponder hire charges are not in the nature of royalty / technical services and thus not liable to TDS would also provide much needed relief to the M&E industry.

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Vide Finance Act 2013, TDS rate on royalty / FTS paid to non-residents had been increased from 10.5 percent to 27 percent (37 percent in cases where tax is to the account of the payer). Given that most of the agreements are on net off tax basis, this has resulted in significant enhancement of cost of doing business.

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Applicability of TDS on discount on the sale of Set Top Boxes / Recharge Coupon Vouchers has been a major area of controversy. The Tax Authorities have been taking a view that the discount is in the nature of commission and hence subject to TDS @ 10 percent. It would do well to the Industry if the government comes out with a suitable clarification that discount is not subject to TDS, so as to avoid protracted litigation thereon.

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Disparity in tax benefits: Carry forward and set off of accumulated loss and depreciation on amalgamation/merger is currently not allowed in the service industry (subject to a few exceptions). With the service sector now being on par with the manufacturing sector in terms of contribution to the development of the Indian economy, this disparity in tax benefit is adversely affecting the growth and consolidation of the service sector.

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Considering the intense competition in the already saturated M&E sector, it has become imperative for the smaller players to consolidate with the larger players. Extending this tax benefit would provide momentum to such consolidation activities in the industry.

The introduction of GST is likely to address several indirect tax issues being faced by the industry. The industry also hopes for a resolution of the various direct tax issues. This will not only provide a boost to the M&E industry but would also attract foreign investment into India, thus contributing to the overall growth of the Indian economy.

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(The author is Partner and Leader, Media and Entertainment at KPMG in India)

Written by FP Archives

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