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DTH, music videos pulled into service tax net

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NEW DELHI / MUMBAI: Bewafaa (unfaithful)! The title of Bollywood's latest "masala" offering could well describe what the media and entertainment industry might be thinking of finance minister P Chidambaram, who presented his Union Budget for 2005-06 aimed at giving a push to infrastructure and agricultural sectors leading to growth and equity.

But for the media industry, a royal ignore and some unkind cuts were what followed as the budgetary proposals unfurled. The Indian government today proposed to levy a 10 per cent service tax on sound re-mixing and video recordings and brought in DTH broadcasting under the service tax net as well.

Pointing out that the scope of certain existing services were being extended to widen the service tax net, the budgetary proposals said broadcasting services would include charges recovered by broadcasting agencies from MSOs and DTH signals to customers.

This would mean that DTH platform managers, too, would have to pay a service tax of 10 per cent to the government, which may be passed on to the customers of a DTH service as done by most other service sectors.

Sound remixing and video tape production of any event on any media have also been brought under the service tax net. And as for some tax sops on the import of equipment long sought by the broadcast and entertainment industry, "Waiting for Godot" is what it continues to be.

Looked at dispassionately from a big-picture perspective though, one can't really fault Chidambaram's reasoning. "This (widening service tax base) has been done as the government feels the services sector accounts for about 52 per cent of the GDP and it is necessary to cast the net wider," says the finance minister.

A rare mention of the industry made in the Budget was when, as part of reduction in customs duty on equipment, the finance minister said that printing presses would benefit.

And while the budget may not be music to the media and entertainment industrys ears, the market did give an initial thumbs up to Budget 2005-2006. The Sensex resumed 14 points higher over its last close at 6,584 and moved in a narrow (positive) range when the minister was making his Budget announcement, before slipping into the red to touch a low of 6,546 in early noon trades. The markets, however, staged a smart recovery immediately after the announcements from Parliament as fresh buying emerged in most counters.

The late noon trades witnessed a steep rally as across-the-board buying support saw the index zoom past the 6,700-mark to touch its all-time of 6,721. The Sensex, after exhibiting extreme volatility during the intra-day trades, finally wrapped up the session with an all-time high close of 6,714.

ZEE TELE SCRIP DOWN 1.77 %

Media major Zee Telefilms, however, declined from Rs 145 to Rs 141 before settling at Rs 141.85, down 1.77 per cent from its previous close. Over 315,000 Zee shares were traded on the Bombay Stock Exchange today.

Though industrywallahs, in hindsight, said in the evening they were not expecting much from the Budget, they still couldnt hide their disappointment at times.

As a relief to small service providers, Chidambaram has proposed to exempt from service tax those whose gross turnover does not exceed Rs 400,000 per year.

Another area where the budget has dealt a negative blow is to the booming multiplex industry (in which players like Zee Telefilms, Adlabs and Shringar two name just three are major players). Multiplexes have been brought under the service tax net.

Says E-City (Zee Group CMD Subhash Chandra's multiplex intitiative) CEO Atul Goel, "The multiplex business will be adversely affected as construction activities have comer under the service tax ambit. Besides, we had sought certain concessions, which the budget is silent about."

A visibly disappointed Federation of Indian Chambers of Commerce and Industry (Ficci) additional director entertainment Siddhatha Dasgupta commented, "While all the other other sectors have got something or the other, the budget has nothing to offer the entertainment industry."

IBF DISAPPOINTED

The Indian Broadcasting Foundation (IBF) expressed its unhappiness over the the royal ignore given to the industry in Budget 2005-2006. Though expressed in a muted voice, the dissatisfaction did came through clearly.

"As an industry, we had suggested so many things, but it's surprising that the finance minister has chosen to almost bypass us," IBF finance director Naresh Chahal told indiantelevision.com.

According to Chahal, the organisation, during pre-Budget meetings, had suggested that the tax strucuture on broadcast equipment should be brought at par with telecom equipment, which has not happened.

While telecom equipment attract duties of around 16 per cent, duties of up to 40 per cent are levied on broadcast equipment.

Chahal also pointed out that another request of the IBF for exemption from service tax for broadcasters, which would have brought them at par with the players in the print medium, "have also been ignored."

Asked about DTH service providers being brought into the service tax net, Zee Telefilms vice-chairman and head

of Siti Cable, Jawahar Goel, said that such a move would work "towards greater compliance on the part of the broadcasters."

Pointing out that he "did not expect much" from the Budget, Goel added that the DTH service being taxed was "envitable.

However, he admitted, that DTH service providers may pass it on to the consumers, but did not indicate whether Dish TV, 20 per cent owned by Zee Telefilms, would also do it.

Doordarshan's DTH service, DD Direct Plus, is unlikely to be taxed as it's a free service and no subscription revenue accrues from it.

MUSIC INDUSTRY UNPERTURBED, WANTS VAT

The music industry is not unduly perturbed with IMI president Vijay Lazarus pinning faith on sales tax which has been modified into VAT.

The music industry would like the government to shift audio cassettes and CDs from electronics hardware, as done in some states, to dubbed music software or get music Intellectual Property Rights (IPR) status under value-added tax (VAT) regime. From that perspective, Lazarus says, IMI is fine with the budget.

"At present, the music industry is categorised in the revenue neutral rate (RNR) category and is not entitled to much of tax sops. An empowered committee on VAT, headed by West Bengal finance minister Asim Dasgupta, will look into the matter as its direct impact is independent of the budget", he explains.

Commenting further on the sound remixing and video tape production that has been brought under the service tax, Lazarus states,"As long as the copyright transactions are exempted under the service tax net, the industry has no problem paying tax on services like any other industry."

IS THIS PCS DREAM BUDGET?

Dreams, sometimes, do die young, but that does not stop every successive finance minister from dreaming of presenting a 'dream' budget.

Chidambaram's 2005-06 budget makes sweeping changes in the personal, corporate and indirect tax regime. Presenting his tax proposals, he underlined the government's intention, as announced by the Prime Minister, to undertake major tax reform to improve the tax to GDP ratio, expand the taxpayer base, increase tax compliance and make tax administration more

efficient.

In direct taxes, Chidambaram has proposed a tax structure under which the corporate income tax rate for domestic companies will be 30 per cent plus a surcharge of 10 per cent. The rate of depreciation will be 15 per cent for general machinery and plant, but the initial depreciation rate will be increased to 20 per cent.

Some highlights of the Budget:

GENERAL

- Government so far sanctioned Rs 36.44 billion for Tsunami relief

-Liquidity overhang, inflationary pressure seen in May' 04

-Chidambaram says disturbing trends noticed in May 2004

-Bank key to raise funds to sustain investment

-Price stabilisation fund for commodities not effective

-Panel set up to probe, improve price stabilisation fund

-Exports to rise $150 billion by FY09

-To further liberalise in trade policy, promote exports

-Opportunities in mining, trade and pension sector for FDI

-Auto, software, telecom, electronic benefited from FDI

-Have proposals for more FDI in mining, trade, pension

MACRO ECONOMY

-FY05 growth rate seen at 6.9% according to CSO

-Economy grew 8.5% in 2003-04 vs 4% previous year

-Inflation reined in

-Inflation for industrial workers lower than WPI

-Inflation based on CPI stood at 3.8% in Dec

-FY06 gross budgetary support to GBS Rs 1.72 trillion

-FY06 gross budgetary support for plan is Rs 1.72 trillion

-FY05 gross budgetary support for plan was Rs 1.45 trillion -FY06 allocation to education Rs 183.37 billion

AGRICULTURE

-5.82 mln new farmers have got bank loans

-Food-for-work plan announced in Nov now in 250 districts

-Assured irrigation facilities to add 10 mln jobs in 5 yrs

- Rs162.54 billion subsidy for fertiliser in FY06

-Allocates Rs 4 billion for promoting micro irrigation

- Rs 48 billion in FY06 for Accelerated Irrigation Programme

-IBA, NABARD plan to recast interest on sugar unit loans

-To ask PSU banks to up FY06 farm credit by 30%

-To ask PSU banks to increase borrowers by 5 mln in FY06

-Continues National Agri Insurance for kharif, rabi in FY06

INFRASTRUCTURE

- Rs 14 bln for 4-laning 4000 km of highways

-To fund investments in infrastructure sector

-Rural electrification scheme to cover 12.5 mln villages

- Rs 11 billion for rural electrification scheme FY06

-To fund infrastructure investments via SPVs in few sector

-Rs 4.50 billion for highway development in Northeast

-Rs 4.50 billion for highway development in Northeast

CUSTOMS:

-To Cut Peak Customs Duty To 15% From 20%

-Have hit the 'pause' button on FRBM Act

-To Cut Customs Duty On Capital Goods Below 15%

-To Cut Customs Duty On Textile Machinery To 10%

-Textile machine custom duty cut to 10% from 20%

-Peak customs duty on non-farm goods cut to 15% vs 20%

-Customs duty on textile machinery cut to 10% from 20%

-Custom duty on leather cut to 5% from 20%

-To Cut Import Duty On Some Machinery For Pharma

-To Cut Import Duty On Metals To 10% Vs 15%

-Custom duty on footwear cut to 10% from 20%

-Customs duty on 9 machines for pharma, biotech cut to 5%

-To Cut Import Duty On Some Textile Pdts To 15%

-Customs duty on coking coal cut to 5% vs 15%

-To Cut Import Duty On Coking Coal To 5% Vs 15%

-Customs duty on primary metals cut to 10% from 15%

-Custom duty on polyester, nylon chips cut to 15%

-Customs duty on refrigerators in food processing cut to 10%

- No Change In Import Duty On Most Farm Goods

-4% Counter duty on import of IT bound products

-IT, software to be exempt from CVD

TAX:

- Income tax brackets revised.

- No tax on income up to Rs 1,00,000

-10% tax on income between Rs 1,00,000-1,50,000

-20% tax on income of Rs 1,50,000- 2, 00,000

-30% tax on income between above Rs 2, 50, 000 lakh

- Standard deduction removed on salary income

- Section 88 rebate eliminated.

- Section 80 L eliminated.

- Employer to pay 30% tax on fringe benefits

- Investments of upto Rs 1,00,000 available for deduction from total income

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