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DTH News : Soni wants tax concessions for media sector
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NEW DELHI: Even as Information and Broadcasting Minister Ambika Soni led a delegation of the entertainment industry in a meeting with Finance Minister Pranab Mukherjee, she handed to him a list of the demands from her Ministry – some of which have been repeated ad nauseum over the past years.

Though most demands were also raised by the industry representatives, the Minister sought to justify the nine demands relating to sectors falling within the ambit of her own Ministry. These demands relate to television, cinema, animation and the print medium.

Categorisation of broadcast services as infrastructure:
Soni wanted categorisation of broadcast, cable and the direct-to-home (DTH) sector as infrastructure service to give boost to the digitisation process. All the benefits available to infrastructure industry should be extended to them, including availability of finance at concessional rates.

Soni has recommended that operators who commence the digitisation of their service by 31 March this year should be given 100 per cent rebate in income tax on the profits and gains accrued from the service for a period of five years and thereafter 30 per cent rebate for further five years in a block of 15 years.

Like the telecom sector, all broadcasting services should be covered under the definition of Industrial undertaking as defined under Section 72 A of the Income Tax Act as this proposal would be revenue positive. The increased growth of the sector and incremental revenue to the government in the form of taxes and levies will be much more than the income tax which may accrue during the period.

Justifying her demand, she said the proposal would be a step forward in Government’s plans to bring in digital revolution in the broadcasting sector and in providing the much needed Triple Play in the single pipe. She said the telecom sector grew after privatisation only because the government provided various incentives to the sector. For the need of level playing and parity, similar benefits for the broadcasting services are justified.

The figure of investment, job opportunities and revenue generation associated with the broadcasting sector reveals that the sector has a great potential to repeat the success story of telecom provided it is given impetus by the government. The Broadcasting Content Services are contributing to the exchequer by way of various taxes, such as service tax, income tax, VAT, etc. However, keeping in view the severe liquidity crunch being faced by various channels because of economic recession, it is imperative that the entire broadcasting sector including the Content Transmission and Content Distribution Services be categorised as Infrastructure services. This would enable the industry to find resources to invest and maintain liquidity.

Inclusion of entertainment tax in GST:
Soni wants the service tax, entertainment tax and VAT be subsumed in General Sales Tax and only a single/unified GST rate be notified for DTH, cable TV, Internet Protocol TV (IPTV), Headend-In-The-Sky (HITS) and similar content distribution services. At present the tax collection per year from various states from cable and DTH services is approximately Rs 6 to 7 billion. After subsuming these taxes in GST, the government may have to forego the revenue but with increased set top box-based digital services, the likely decrease in collection taxes will be offset and the States would gain more from the new GST regime.

She further said both DTH and cable TV services are reeling under heavy burden of multiple taxation and levies such as licence fee, service tax, entertainment tax, VAT etc. (adding up to 56%). This acts as an impediment for the growth of the sector. Multiple taxation has resulted in the services becoming costlier and unaffordable for the masses.

Hence there is a need for rationalisation of taxation structure. The revenue realised by way of GST would be much more than the likely loss in revenue resulting from the subsuming of entertainment tax and VAT in GST.

Exemption of service tax to multiplexes:
Soni has sought exemption from levy of service tax on property rentals and payment made by multiplex operators to distributors for exhibition of films. These exemptions may continue till GST is introduced and entertainment tax is subsumed in the GST, to promote expansion of multiplexes in small towns, and facilitate the growth of cinema screening in the country.

Exemption of excise duty on colour unexposed cinematographic jumbo rolls:
Voicing a demand of the film industry, Soni said while countervailing duty (CVD) exemptions in certain cases were withdrawn in 2004, CVD at the rate of 16 per cent continues on unexposed cinematographic colour films. She wanted the Finance Ministry to consider exemption of excise duty on colour unexposed cinema jumbo rolls of 400 ft and 1000 ft.

Duty rationalisation on digital headend/broadcast equipment:
The project import status given to digital headend project by multi-system operators (MSOs) in the 2010-11 Budget at a concessional rate of five per cent with full exemption from special additional duty in the formative phase had not benefited the industry, Soni said, since the basic customs duty varies from 7.5 per cent to 10 per cent for imported digital headend equipment. It should, therefore, be brought down to zero per cent to give impetus to digitisation in the country in lieu of the target of migration to digital broadcasting by 2017.

The revenue impact will be minimal (around Rs 1.77 billion). This is in view of the fact that the items constitute less than five per cent of the capital expenditure outlay of DTH/Teleport companies. Digitisation will bring in more revenue as the declaration level would go up in terms of subscribers, yielding higher revenues resulting in higher service and corporate tax yields to the Government. The expected revenue gains from the increased digital penetration will be much more than the revenue loss.

In any case, this revenue loss would be recovered by an increase of subscriber level by 2.02 million.

Due to categorisation of broadcasting services as Telecommunication Service under Section 2 (k) of TRAI Act, 1997, the exemption sought for digital headend equipment, which is already being granted to telecom equipment is justified.

Rationalised duty structure will result in increased demands for set-top boxes because of increased affordability by the consumer, which, in turn, results in high return of revenue in the form of service tax and license fee to the Government. India has the maximum potential for DTH service growth in Asia. The rationalised duty structure would help the country to become a major teleporting hub as India is uniquely positioned to pick up the content from SE markets for delivery to Europe on a single satellite hop and at a much lower cost.

Moratorium from excise duty for domestic manufacture of STBs:
Soni said in view of the limited capacity of indigenous manufacturing, a considerable number of set-top boxes are currently imported to meet the growing demand. Due to the limited availability, the digitalisation roadmap is not growing at the expected pace. To give impetus to the digitisation process, the cost of STB is required to be kept low.

She sought a moratorium for three years on the custom duty on digital STB (presently 5%); special additional duty (presently 4%); CVD (presently 8%); and excise duty on digital STB (presently 10%). The revenue impact will be approximately Rs 187 per STB, but digitisation will bring in more revenue and the expected revenue gains from the increased digital penetration will be much more than the revenue loss.

The revenue loss due to proposed exemption will be offset by higher tax collections which will result in additional revenue from the second year onwards, with the first year being revenue neutral.

Soni said this happened in the telecom sector, specially the mobile sector, once the duties on handsets were reduced to zero. Accordingly, the support to the proposal would enable each STB to generate additional revenue to the tune of Rs. 720 each for four years.

Digitisation not only results in various benefits to the consumer but also brings in transparency in the cable sector leading to better tax compliance and realisation of taxes, as the number of subscribers would be transparently known unlike the present analogue regime which results in huge leakage of revenue.

Increased consumption will bring higher revenue to the broadcast sector which, in turn, propels the growth of employment. Broadcast sector will pay more in the form of corporate taxes.

Tax concessions to animation, gaming & VFX industry:
Soni also reiterated her demand for a ten-year tax holiday for the animation industry to accelerate rapid growth of this sector as it has tremendous growth potential. She also wants exemption of DVD writers from custom duty; lifting of service tax on studios developing original content; exemption of import duty on hardware for a period of 10 years; 10 per cent mandatory local content to begin with in the network and to reach 30 per cent in the next three years; and provision of 50 per cent reimbursable market development. In addition, she wants assistance (MDA) for travel and registration fee to popularise local production companies to disseminate information in international market; and reduction of excise duty on local manufacture from 12.5 per cent to zero percent with consequential benefits of CVD to zero; and zero import duty on consoles for gaming hardware.

The animation, Gaming and VFX industry is a sunrise industry and urgently needs tax concessions/exemptions for its growth, she said.

Duty exemption on standard/glazed newsprint:
With regard to the print sector, Soni wanted duty exemption in standard and glazed newsprint Light Weight Coated (LWC) paper as she said this is the most important raw material for magazines and accounts for 60 per cent of the production cost. There is no duty on newsprint and LWC paper up to 70 gms at present, she noted.

As a number of magazines have started using paper up to 80 gsm for inside pages, the current exemption may be extended up to 80 gsm. It may also be noted that neither glazed newsprint nor LWC paper up to 80 gms are manufactured in India.

Concession on duty on art paper for magazine covers:

While the inside pages are exempt from custom duty, the same exemption is not extended to cover paper used by the magazines, which are printed on thicker art paper so that they can be preserved for a longer period. Soni wants duty to be exempted subject to ‘actual usage” condition for the magazine industry, since the industry pays hefty import duty/excise duty.

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