Budget 2001-02:The tax axe for foreign telecasting channels

(Posted on 28 February, 3:45 pm)

One of the major announcements of the Union Budget which is likely to impact cable and satellite television sector is the removal of Circular 742 which presumed that profitability was 10 per cent of net receipts for foreign telecasting companies and imposed corporate tax of about 40 per cent on that amount. The removal was expected but it has been a bone of contention for the television industry which has been protesting against any such moves.

Most television channels have a foreign broadcasting company which uplinks from overseas. Their Indian firms are programming and ad sales units. For instance, Zee Telefilms is a programming and ad sales company while Asia Today Ltd, based in Hong Kong, is its uplinking company. With the doing away of Circular 742, these foreign telecasting companies will be taxed on their net profits.

"The impact of this will be greater on Star TV and Sony Entertainment Television," says Kotak Securities senior research analyst Sanjeev Prasad. This view was echoed by ASK Raymond James chief John Band on CNBC India. Some believe the impact of this will be highest on Star TV India as its revenues have been rising and the company is expected to notch up higher profits from its Indian operations, thanks to the success of its programming.

A Kotak Securities analysis has shown that Zee Telefilms' bottomline will be impacted to the tune of seven to nine per cent. With its profitability at between 20 and 25 per cent, taxation levels at 35-40 per cent on this will mean a tax impact of nine per cent, goes this analysis.

According to senior industry professionals, none of the television channels are going to take the new dispensation lying down.

"More light has to be thrown on this announcement," says Star India finance head Shankar Narayan. "We will be having discussions with the authorities." Says Sony Entertainment Television CEO Kunal Dasgupta who is a crack finance man himself: "The government says it wants to encourage the entertainment industry but it is hitting the television industry hard with this announcement." Adds TV 18 India CEO Harish Chawla: "It is going to be a blow to the industry. But we have to wait and understand how costs will be calculated for a foreign channel to compute net profits."

Budget 2001-02:
Highlights relating to the TV and entertainment sector
Not so friendly for the cable & satellite television industry
Highlights of the Union Budget 2001-2002
Full text of Yashwant Sinha's budget speech