Regulators

GST benefits come with ‘daunting’ compliance & increased paperwork, say sector stakeholders

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MUMBAI: Even as the government has been attempting to convince the industry and the average tax-paper that the goods and services tax (GST) being implemented from 1 July 2017 will help not only in curbing price rise and simplifying taxation procedures, the broadcast and entertainment industry has shown mixed reaction and fears that it may, in fact, lead to more problems and paperwork -- at least in the short to medium term.

In a survey conducted by indiantelevision.com , industry pundits have questioned the increased paperwork and complex compliance that is opposed to the ease of doing business.

Multi-system Operator GTPL COO Shaji Mathews, admitting that overall taxes related to the media and broadcast industry will come down under GST, said, “The paper work (to become GST-compliant) has increased because you need to register in every state you are operating in.” In the cable industry, the service tax has been 15 per cent. The set-top box (STB) and other equipment related to cable were in a higher tax bracket, 28 per cent earlier, which has now been reduced to 18 per cent.

Mathews added: “The industry has a very positive approach to the government, but a similar approach is needed from the other side. As far as the consumers are concerned, GST will apparently make their payouts a little higher because the tax rate is up from 15 to 18 per cent.”

He further said: “With GST coming, it was widely accepted that all other taxes, including entertainment tax, will get subsumed in GST. The implementation of GST was expected to give the industry a uniform pricing and clarity to all stakeholders regarding taxation. There are states where the entertainment tax is not levied by the states but by the local bodies. In these states, there is neither uniformity nor clarity."

However, he hoped that as long as everything was system-driven it will ultimately help better compliance and better settlement of tax returns for the cable and broadcast industry. “In the long run, we all are bought by the GST concept. However, there may be problems in the beginning. So we are being patient and are hoping that over a period of time this will definitely be beneficial and everything will fall into place,” Mathews added.

He concluded: “All the paperwork will not lead to loss of revenue but we think that these investments are worth doing and as an industry we need to contribute to the implementation of the concept.”

Echoing similar sentiments, Reliance Broadcast Network Limited CFO Asheesh Chatterjee said “the billing software and the entire radio industry are grappling with how the billing is supposed to emanate” because most radio stations operate across multiple states and , hence, compliance is a “challenge.”

“From our perspective the entire compliance mechanism requires rigorous exercise from all the registrations done across the multiple states and vendors who also need to be GST registered across the space. The radio industry is much smaller, but the compliance load for the industry is much bigger. GST is for the highly automated streams where you have big teams, which are already in place because of the larger scale. But mid size firms do not have that type of automation level and suddenly you are grappling with the time driven agenda of compliance where there is no way out of it,” Chatterjee highlighted the pains of mid-size companies.

When asked how the GST will benefit broadcasters, he commented, “It will be initially negative for the broadcasters, but may become beneficial later.” But, Chatterjee maintained that it was not easy to be GST-compliant and added, “It is not simple at all. All software, from your billing software to your traffic software, needs higher degree of customization to be ready.”

Questioned whether the paperwork and filings with the government agencies would increase as compared to the previous set up of multiple taxes, he responded by saying though in the long run the GST regime may be beneficial, smaller organizations, which do not have a high level of automation, will find it “more difficult” to be ready in the short term.

As to whether the sector will benefit from GST, he explained that if the country’s economy does well, it would benefit everybody, maintaining “in the short term it has pains.”

Responding to whether getting GST-compliant will lead to loss of man-hours and revenue, Chatterjee admitted that it will lead to “lot of man-hour loss,” but added that compliance, in the long term, would have a cascading effect on the revenues that would increase as systems are properly put in place.

Republic TV group chief financial officer S Sundaram was more candid when he said, "There is no option. We will know whether we can address all key compliances as and when the process comes into operation.”

Still, he admitted getting GST-compliant is “not simple” and companies will have to see whether the multiple and online process is helpful.

While making a point on the impact of GST on broadcasters, he said it was “too early” to judge whether this will benefit the broadcasters or not.

When asked if paperwork has increased to be GST-ready, Sundaram replied that “numerically it looks daunting” but the actual difficulty can only be fathomed when the filing process begins, adding that GST is a new initiative that has its positives and negatives -- while multiple taxes have got subsumed in the new structure, the GST rates have the “potential to confuse” and the robustness of the underlying IT process needs to pass scrutiny.

However, DDB Mudra Group ED and DDB Mudra West managing partner Rajiv Sabnis was more optimistic saying “most advertisers GST touches are going to have a favourable impact.” According to him, major beneficiaries of the new tax regime would be sectors of retail and FMCG, while e-commerce may get negatively impacted.

Still, Sabnis also admitted that prima facie GST “looks very simple, but is highly complex” as far as compliance goes. Reason? Vendors have to be registered prior to the 30 June 2017 deadline and many clients do not want to be registered as vendors as they will not get the benefit of the input credit (a technical jargon for offsetting payment of extra taxes). “So there is a complex mechanism of registering vendors,” he explained.

As to whether GST has increased the paperwork and the filing processes, Sabnis said, “Paperwork has definitely increased for national clients. For example, the Tourism Ministry suggests that all 29 states be charged separately, which means 29 different invoices will have to be raised for one 30-second spot (of advertisement). In that sense, compliance is complex. I think it is a learning curve and if some new complexities arise in future, I am sure the government will find solutions to ease the GST pains.”

According to Sabnis, in the long run GST would prove to be beneficial to advertising setups as his as it has a high degree of exposure to retail and retail will be benefitting the most from the GST.

But, that is in the long run. In the short term, broadcasters are bracing for a revenue hit courtesy the GST imposition. A leading GEC CEO was recently heard telling another rival, that his network was girding up its loins for the impact of the new tax.

“First there was demonetisation which hit our revenues, because advertisers immediately slammed the brakes on spends,” he says. “Now there is GST. While large advertisers such as Levers, Procter & Gamble may continue to spend despite the plethora of paperwork and confusion, smaller ones which do not have their systems in place, may not be that eager. They would want to understand how things will move going forward – paperwork, compliance etc - while observing for a couple of months. I expect July-mid-August to be lean months, especially for the news and smaller TV channels which are dependent on smaller advertisers. Things should ease up after that.”

That’s a view echoed by the CEO of an advertising network. He expects an advertising flood to hit television channels by end-August. That should provide them with some relief.

Clearly, 2017 has been a bit of a bumpy ride.

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