Budget 2001-02: Not so friendly for the cable & satellite television industry

(Posted on 28 February, 6:35 pm)

Overall, Budget 2000-2001 has not bought too many smiles to cable and satellite television industry professionals' faces. "It has done little for the television industry," says TV 18 CEO Harish Chawla. "Nothing on the software front; nothing on the hardware front. Customs duties have dropped 10 per cent across and this is probably applicable to cable TV as well."

Amongst the major bugbears is the imposition of tax on foreign telecasting companies' real net profits rather than on 10 per cent deemed profit on their net receipts (see: The tax axe). Other irritants include the application of the five per cent service tax for broadcasting companies. "We do not know what will constitute broadcasting services," says Star finance head Shankar Narayan. According to Kotak Securities, the service tax is likely to be on advertising and one can expect television commercial spot rates to go up.

Two announcements which have cheered the television industry relate to the capital and financial markets. The foreign insititutional investment limit has been hiked to 49 per cent from 40 per cent earlier. "We have not reached our 40 per cent limit yet but the 49 per cent is more than welcome," says Chawla. "It will open up a lot of opportunities for us."

Additionally capital gains tax has been abolished if the capital gains are reinvested into primary stock issues. "This is very good and should boost the stockmarket as a whole, even media companies opting for IPOs," says Sony Entertainment Television CEO Kunal Dasgupta.

The reduction of tax on dividends from 20 per cent to 10 per cent may not impact media companies as most of them are not high yield companies, says Chawla. The reduction in corporate tax and doing away of all surcharges should help media firms, says Narayan.

One wonders whether the pronouncements about pushing conditional access, direct to home broadcasting and animation made by information and broadcasting minister Sushma Swaraj mean anything at all. She could have worked along with Sinha and clipped import duties on hardware and software needed to take the cable and satellite television industry into the addressability era. Additionally, entertainment tax on cable TV has not been shifted from being a state wide subject to a Central subject, which is something former I&B minister Arun Jaitley had threatened to work on. "But I guess we will have to wait for the Convergence Bill and the Convergence Authority to act on these demands, won't we?" asks Kotak Securities senior research analyst Sanjeev Prasad.

Meanwhile, finance minister Yashwant Sinha - in a populist measure - has decided to tax game show winnings at the rate of 30 per cent. Earlier, the taxability level was at 44 per cent but the onus was on the winner to declare it file his returns and pay tax on his take-home. This was the first year when broadcasters started handing out prize money to participants and they had yet to file their returns.

The government, however, did not want to take chances on the honesty of the participants and see a loss of tax collections, as he was not obliged to do so. The amount of prize money expected to be handed out by all channels having game shows is not expected to exceed Rs 500 million this year.

"The onus has now shifted to the broadcaster to deduct tax at source," says Star TV finance head Shankar Narayan. "Things have been regularised." Agrees Kotak Securties senior research analyst Sanjeev Prasad: "The participants are surely going to benefit as the tedium has gone out of their hands."

 

Budget 2001-02:
Highlights relating to the TV and entertainment sector
The tax axe for foreign telecasting channels
Highlights of the Union Budget 2001-2002
Full text of Yashwant Sinha's budget speech