Specials

Infrastructure status for b'cast industry, reduce customs duty on STBs: FICCI budget wish-list

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NEW DELHI: The Broadcasting industry should be granted infrastructure status to push the digitisation agenda of the government. 

In its wish-list submitted to Finance Minister Arun Jaitley – who also holds the Information and Broadcasting portfolio – the entertainment wing of the Federation of Indian Chambers of Commerce and Industry (FICCI) said that in the present era of convergence, the distinction between Telecom, IT and Broadcasting sectors is getting blurred. 

The Telecom sector is already treated as “infrastructure service” and so giving the infrastructure service status to broadcasting will provide a level playing field to the sector.

Broadcasters and distributors will be aided with better and affordable financing options in the very capital intensive growth phase. 

The FICCI wish-list covers television and radio broadcasting, cinema and animation and gaming, apart from suggestions relating to advertising in the media. 

At the outset, FICCI says the Indian media and entertainment industry grew from Rs 821 billion in 2012 to Rs 918 billion in 2013, registering an overall growth of 11.8 per cent. Given the impetus introduced by digitisation, continued growth of regional media, new government formation, strength in the film sector and fast increasing new media businesses, the industry is estimated to achieve a growth rate of 15.3 per cent in 2014 to touch Rs 1059 billion. The sector is projected to grow at a healthy CAGR of 14.2 per cent to reach Rs 1786 billion by 2018. 

Television clearly continues to be the dominant segment, but strong growth has been posted by new media sectors, whereas gaming and digital advertising recorded a strong growth of 25.5 per cent and 38.7 per cent compared to the previous year. The music sector has shown a decreasing growth (-9.9 per cent growth in 2013 over 2012 compared to 18 per cent growth in 2012 over 2011) despite strong content and digitisation.

Radio is anticipated to see a spurt in growth after the roll-out of Phase III licensing. The benefits of Phase I cable digital access system (DAS) rollout, and continued Phase II rollout are expected to contribute significantly to strong continued growth in the TV sector revenues and its ability to invest in and monetize content. 

The sector is expected to grow at a compounded annual growth rate (CAGR) of 18.1 per cent over the period 2013 to 2018.

Set Top Boxes 

It said the expected investment in set top boxes alone is around Rs 20,000 to Rs 25,000 crore and therefore wants the customs duty levied on STBs to be on the transactional value and not the maximum retail price. Basic customs duty should be reduced to five per cent if not zero per cent as this will help push digitisation faster, which would lead to transparency which will result in manifold increase in the tax revenues from Service Tax, Entertainment tax and Income-Tax. 

Television Sector

Referring to tax withholding on Transponder hire charges (Section 9(1)(vi) Explanation 6 of Income Tax Act, 1961), FICCI pointed out that the Finance Act 2012 amended the section to retrospectively include payment for transponder hire and other charges as royalty. However FICCI wanted a clarification to be issued that Transponder hire charges are not “royalty” as Courts in India have held that such charges are not ‘royalty’ or ‘Fee for Technical Service’ (FTS). The law was retrospectively amended to nullify the effect of the judicial decisions. This is an artificial deeming provision hurting industry. These are standard services and no transfer of technology. OECD commentary also does not treat such payments as “royalty” or “FTS”. 

On tax withholding rate on Royalty (Section 115A (1) (A) & (B) of Income Tax Act, 1961), FICCI said the Finance Act 2013 increased withholding rate from 10 per cent to 25 per cent. However, it wanted that the 10 per cent withholding rate should be restored as most of the Tax Treaties have 10 per cent or 15 per cent rate and most of the contracts are on ‘grossed up’ basis leading to 37 per cent tax burden on Indian payer. This assumes almost 100 per cent profit on the payment at current corporate tax rate and is absurd, says FICCI. The change will also reduce the cost to Indian business/consumer and would benefit Broadcasting, DTH and HITS sectors. 

Section 72A of the Income Tax Act 1961 allows carrying forward of losses in case of amalgamation or merger for service industry. Currently, all industrial undertakings in the Manufacturing, Software, Electricity, Telecom, etc. sectors are allowed carry forward of losses in case of merger /amalgamation, but the services industry undertaking in general is not allowed such carry forward. Section 72A(7)(aa) should be amended to include Broadcasting, Media and Entertainment sector if not all services sector undertakings to ensure a level playing field with other services industry like Telecom, Software etc. as this will encourage consolidation for rapid growth.

Credit under the ‘Served From India Scheme’ under the Foreign Trade Policy is currently available as set off against excise and customs duty liability and the period of utilisation of SFIS credit is two year and is not transferable. Therefore, the SFIS credit should be allowed as set off against Service Tax liability in addition to Excise and Customs Duty liability. SFIS credit should be made transferable or tradable outside the group entities similar to DEPB scheme. The period of utilization of SFIS credit should be increased from two to five years. FICCI says that for the purpose of CENVAT credit, there is no distinction between Service Tax and Excise duty and not all companies have import requirement and thus the benefit of the scheme is not really received by such company. Making SFIS credit transferable will give level playing field with DEPB and other incentives schemes.

Doordarshan 

FICCI wants Doordarshan to launch DD Kids, a channel dedicated to kids’ content in “digital terrestrial” space as it would promote intellectual property creation in India in the field of animation and other content for children. 

Radio 

Referring to radio, the industry body said it wanted reduction of customs duty on radio broadcasting equipment to four per cent especially on transmitters, consoles etc which are not produced in India. It said there is no justification for the high CVD and additional CVD being charged and India has one of the highest import duty rates for transistors. 

It wanted a removal of the service tax on advertisement in radio since it competes with newspapers at local level even though there is no service tax on advertisement on newspapers. This will also provide a level playing field to radio. 

Referring to FM Radio Phase III, FICCI wanted assistance to raise money, provide priority Provide tax holiday for five years for new capital investment in Phase III and provide a fiscal sector lending sector status so that radio industry is able to access easier availability of finance at with lower interest rates. This was because a large amount of capital is required for the roll out of phase III of FM radio privatization.

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