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Budget: New tax on STBs to hurt DTH, Cable ops
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MUMBAI/NEW DELHI: Finance Minister Pranab Mukherjee has imposed a harsh dose on the cable TV and direct-to-home (DTH) operators. A five per cent basic customs duty on set-top boxes (STBs) will push up costs, hurting the intensity of digitalisation which is growing under subsidisation, high customer acquisition cost and low ARPUs (average revenue per user).

Unveiling the budget for the year to March 2010, Mukherjee said a nominal duty was being introduced “now that production capacity has come up in the country” and to “encourage domestic value addition.” The government had announced full exemption in 2006 from basic customs duty for STBs to enable their free import for the smooth introduction of Cas (conditional access system).


DTH and cable TV companies have been importing STBs and fierce competition to woo customers has meant that the boxes have been heavily subsidised. The customer acquisition cost for DTH companies is ranging between Rs 2600 and Rs 3000, prompting the sector to line up substantial investments. Market leader Dish TV, for instance, requires Rs 14 billion investment as it plans to add six million subscribers over the next two years.

Says Tata Sky MD and CEO Vikram Kaushik, “The increase in the customs duty on STBs will add to the cost of digital TV services for consumers at large. The DTH industry is one of the most heavily taxed areas in the media and entertainment space. With an unprecedented 10 per cent revenue share payable to Government, the industry pays service tax, VAT, and in many states entertainment tax as well. The DTH industry has been pressing for some relief for a long time. The imposition of 5 per cent customs duty will add to this burden. It is widely acknowledged that the DTH industry is playing a pioneering role in the digitalization of TV services in India. This will be a setback for that process by widening the price gap between cheap and under-declared cable services and transparent, addressable DTH services.”

Adds Dish TV COO Salil Kapoor: "The additional burden of 5 per cent tax on STBs will hinder growth and discourage the DTH industry from expanding its business. We will be passing this tax hike on to the customers. We, however, welcome the removal of FBT and introduction of GST (Gods & services tax), which will provide some relief to the DTH industry from multiple taxes from centre and the states. Focus on building infrastructure, power generation and opportunity for rural employment will increase income and purchasing power which will add impetus to the TV industry and DTH service providers."

Cable TV companies are also heavily subsidising the STBs to stay in competition and push for digitisation. Says Digicable Network (India) founder-promoter and CEO Jagjit Kohli, “This is an unwanted step and is bad for all of us.”



Agrees Casbaa (Cable and Satellite Broadcasting Association of Asia) India executive director Anjan Mitra, “Imposition of an additional 5 per cent duty on STBs will hit spread and process of digitalisation in India, which had been flagged by Trai, MIB and the PMO as a priority area. With boxes likely to become costlier, the consumer ultimately will have to shell out more. At a time when the world is moving towards digitalisation, India’s tax structure is not giving any additional incentives for this. The situation is sad as domestic manufacture of STBs is almost next to nil and cable and DTH operators have no option but to import boxes.”

But will this new customs duty open up the window for the local production of STBs? “It is too early to make a judgement of this and we haven’t worked out the economics yet. But yes, it will make us think on whether we should create a local production base,” avers Kohli.
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