Business Today

Budget 2012: Media & entertainment sector seeks tax reforms

While the media and entertainment sector has tremendous growth potential, prudent fiscal legislation would help it perform at its potential.

Anusha Subramanian        Last Updated: March 2, 2012  | 12:43 IST

Anusha Subramanian
Anusha Subramanian
The Media & Entertainment (M&E) sector in India is currently Rs 80,250 crore and is projected to grow at a CAGR of 12 per cent to reach Rs 1,26,981 crore by 2015. The sector is one of the fastest developing in the country, driven by changing consumption patterns, an increasing number of middle-income households and the propensity of consumers to spend on leisure and entertainment.

However, with a myriad of taxes in various forms and multifarious statutory compliances, members of the M&E sector are hoping for a simplification of the tax laws and resolutions of some of the long standing tax controversies that impact the sector.

Some of the key issues affecting the M&E sector as a whole are the high carriage fees paid by the TV channels to DTH and MSOs and various cable operators to be placed well. As per industry estimates, the carriage cost paid by TV broadcasters in 2010-11 was Rs 1,300 crore and the same was expected to be around Rs 1600 crore for 2011-12.

Currently, the broadcasters deduct tax under the section 194C at the rate of 2 per cent, treating such payments as consideration for work. However, the tax authorities have been contending that such payments are liable for tax deduction at source ('TDS') at 10 per cent under Section 194J of the IT Act on the ground that such payments are towards technical services/use of process, etc. Thus, the broadcast industry hoping for a clarification on the TDS levied on the carriage fees payments.

The M&E sector is also subject to a host of other taxes and levies such as service tax, license fees, entertainment tax, State levies such as VAT, etc., apart from corporate income tax. To add to the above, there exists a disparity between taxes imposed on companies falling under different segments in the M&E sector. For instance, a broadcasting company is subject to taxes such as service tax, VAT, etc. Whereas print companies enjoy relief from service tax and are also eligible for certain other waivers.

 In the case of the Rs 3,000 crore animation industry, the situation is even more grim and industry officials have been crying for the removal of service tax and to be granted a tax holiday on the lines of the IT industry so as to give the local animation industry a boost. Last year these proposals went unheard. Industry officials say they are happy doing outsourced work as they earn better export income and tax incentives and also do not have to pay huge amount by way of TDS and service tax for the work done.

The animation industry is largely plagued by the lack of a full policy framework, which in turn hampers growth in the local animation industry. A new version of the sector tax framework, which brings uniformity and rationailzes the multiple levies into a unified levy would ease the burden of compliance and could also reduce current litigation on various vexed issues.

While the M&E sector has tremendous growth potential, prudent fiscal legislation would help it perform at its potential. The need of the hour for this sector is appropriate tax reforms to enable the Indian M&E sector to further grow and go global.

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