IBF demands tax holiday, level playing field with print and telecom sectors


NEW DELHI: The Indian Broadcasting Federation has sent several pre-budget demands to the ministry of finance, including the expansion of the definition of Industrial Undertaking under Section 72A of the Income Tax Act, 1961 to include electronic media i.e. TV broadcasting, as well as exemption of cess charges and additional duty on STBs.

It has also demanded that for the next 10 years, the government must reduce the base for Fringe Benefit Tax (FBT) from 20 per cent to five per cent for the industry, as in the case of computer software industry, a senior official at IBF told

The IBF recommendations say that for the next 10 years, the government should exempt CVD, cess charges and additional duty on STBs to ensure that customers get STBs at reasonable prices.

The Excise Duty should be zero to encourage indigenous production of STBs.

The Customs and Excise Duties on all the other broadcasting equipment should be kept at par with the IT equipment, the IBF has demanded, seeking a level playing field for the electronic and print media.

"We strongly recommend that the Government of India should exempt broadcasting industry from Service Tax as in the case of print media.

The IBF reasons that Section 72A of the Income Tax Act, 1961, provides an incentive to robust companies to take over and amalgamate with the companies which would otherwise become a burden on the economy.

The basic objective of Section 72A was to revive the financially weak businesses and synergise the business to achieve better growth, better profits, recovery of bad advances by banks and institutions, which will result in higher tax revenues, increase in employment ultimately leading to contribution to the economy.

Section 72A of the Income Tax Act, 1961, defines the term Industrial Undertaking but does not seem to cover Broadcasting Industry.

IBF feels that when this definition was introduced, industry was in a nascent stage and probably that is the reason it was not included in the definition of the 'industrial undertaking' though the print media does get covered under this definition.

"We therefore request to favourably consider the matter and expand the definition of the term Industrial Undertaking to include the broadcasting industry," the document said.

"There are 112 million television homes in India and more than 68 million homes are connected to cable TV and these are increasing rapidly," says the report in its preamble, arguing that .forr the majority of Indians, including the poor and non-educated people, television is the cheapest source of information and entertainment.

According to the document, the industry produces approximately 6,00,000 hours of original programming annually for more than 300 TV channels, making it one of the biggest in the world.

There are over 50 million viewers of Indian TV programming in neighboring countries and overseas creating a positive international image of India unlike any other media, the document asserts.

It argued also that the TV channels spread a sense of unity and integrity in the country, as witnessed during Kargil War, Gujarat earthquake, the terrorist attack on the Parliament on December 13, 2001, the 2004 tsunami tragedy, and the most recent train blasts in Mumbai.

On the issue of FBT too, the IBF has taken a strong stand of being discriminated against vis-?-vis other industries.

"The Finance Act 2005 has considered 20% of the total expenditure under certain heads as being subjected to Fringe Benefit Tax (FBT).

"However, in industries such as pharmaceuticals, computer software industry, hotel industry etc., the value of fringe benefits for the purposes of computation of tax is taken at the rate of 5 per cent, which is a clear discrimination against television broadcasting industry," the official said, quoting the IBF document.

Explaining the nature of the industry, especially news channels, the document says that this involves extensive communication (telephone/mobiles) and use of vehicles for carrying performers, technicians, panelists, politicians and audiences and other celebrities who appear on the channels frequently.

The news channels have to depute OB vans, cameramen and reporters for out door coverage of events and activities. The telephone also has to be used excessively.

(Telephone charges as part of the salary paid for by the company to employees comes under the mischief of FBT, hence the demand for the reduction of FBT base from 20 to five per cent)

the IBF has also claimed a level playing field vis-?-vis the IT industry in terms of benefits and concessions with regard to Customs and Excise Duties.

"The Central Government, in the Ministry of Telecom and IT have amended the Trai Act and through Notification dated 9th January, 2004, the scope of the definition 'telecommunication services' has been expanded to include the 'broadcasting and cable services' also.

"Thus, for all purposes, broadcasting and cable services are now telecommunication services," the document delineates, hence the demand for being treated at par with the IT industry, so far as excise and customs are concerned.

Therefore, the incentives/concessions granted to the IT sector, should be ipso-facto extended to broadcasting/cable services also and this may find a mention in all relevant notifications/circulars.

"For example, as of now, Customs Duty+CVD+Cess for broadcast equipment is 36.64 per cent, whereas it is only 21.32 per cent for computers and four per cent for cellphones," the document says.

"Now in the convergence era the same STB / modem can be used for cable, DTH, IPTV and even cellphones. Therefore, Customs Duty on broadcast equipments should be at par with the IT Industry.

IBF says also that Customs Duty on STBs was reduced to zero per cent in 2005, however CVD, Cess charges and additional duty comes to 21.32 per cent

"In the interest of millions of TV households, the Government should exempt CVD, Cess charges and additional duty on STBs for next 10 years," it has told the Finance Ministry, adding that in order to promote indigenous production, Excise Duty may also be exempted for a period of 10 years.

The private Indian broadcasting Industry started only in 1992, and is still in a nascent stage.

To meet the demands of the people, a large number of new TV channels are being launched and many of them have not been able to reach profit-making stage, explains IBF.

The Industry is, therefore, not in a position to take the burden of Service Tax.

The IBF document gives a detailed account of revenue and tax burden of the broadcasting industry last fuscal:

The Total Electronic Media Advertising Revenue - Rs. 6,100 Crs. Prasar Bharti Advertising Revenue - Rs. 960 Crs.

Private Channels Advertising Revenue - Rs. 5,140 Crs.

Total Service Tax @ 12.24% on Rs. 6,100 Crs. - Rs. 747 Crs. 

Service Tax Liability of Prasar Bharti - Rs. 118 Crs.

Service Tax Liability of Other Channels - Rs. 629 Crs.

Though service tax is levied on broadcasting media, print media is not attracting service tax even though it enjoys a larger share of advertising revenue.

Total Estimated Advt. revenue (F.Y. 05-06) Rs. 13,300 Crs. (approx.)

Print Media Rs. 7,200 Crs. (54%)

Electronic Media Rs. 6,100 Crs. (46%)

"Further, just like a page of the newspaper, the television screen is only a carrier of programmes and the broadcasting media should also, therefore, be exempted from Service Tax," IBF has argued.

In fact, IBF has pointed out the advantage of its medium vis-?-vis the print medium, saying that television industry is one step ahead of print media in providing information and education to the illiterates.

It says that for the illiterate persons, visuals and the spoken word carry the education and information where the written word fails. In fact, the broadcast media is the only means to reach the illiterates which constitute 40% of our adult population and a significant number of youngsters, says IBF.

"We would like to, therefore, highlight this discrimination against broadcasting media which has not been removed in spite of our repeated representations," IBF has asserted in its memorandum.

The IBF feels that news and current affairs channels do yeomen service to the nation and all are free-to-air, whose only source of revenue is advertisement.

These require huge investments in infrastructure, human resource, etc.

There are already more than 35 news channels and more are being launched every month, leading to scramble for the limited ad revenue pie. Service Tax on these channels therefore slowly lead to their deaths, IBF says.

Ad spend to GDP ratio for India is one of the lowest at 0.34 per cent.

It is 1.3 pet cent for USA, 1.0 per cent for Australia and even our neighbouring countries in South East Asia like Malaysia, South Korea, Singapore etc enjoy a high ratio of 0.8 to 1.0 per cent, IBF has shown in re document.

While this indicates the potential available, but without government's support like Service Tax holiday on advertisement revenue, the potential cannot be exploited to desired extent

IBF has also argued that Service Tax pulls down consumption and hence economic growth. Lower consumption means lower overall tax revenues.

"Service Tax is an unfair disadvantage for new Indian and foreign investors," IBF has said.

The Central Government vide Notification 6/2005 dated March 1, 2005 has granted an exemption to the service providers (small cable operators) whose aggregate value of taxable service for a financial year does not exceed Rupees Four Lakhs.

Subscription revenue forms a significant portion of the revenue earned by any broadcasting company/agency and contributes to defraying the huge expense incurred on providing high quality content to the C&S viewing population.

"It would be appreciated that the position adopted by cable operators (of not paying the service tax to the Broadcasters for service received by them) is causing irreparable harm to the operations of broadcasting fraternity; and is indeed causing revenue leakage to the government," IBF says.

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