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Encourage greater indigenous STB production with tax holiday in budget for DAS to succeed

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NEW DELHI: With the Government hoping to achieve complete digitisation of the cable television sector by the end of this calendar year, it is imperative that the Union Budget for 2016-17 being presented on Monday has important concessions for the industry.

Perhaps the most important step would be to give infrastructure status to the Broadcast, Cable and direct-to-home (DTH) sector so that it gets all the benefits and incentives available for infrastructure industry including the availability of finance at a concessional rate.

Though the government claims more than 90 per cent seeding of set top boxes (STBs) in all urban areas covered under Phase III of digital addressable system (DAS) – a figure disputed by most private stakeholders, it is important that the budget should give some concessions that benefit the sector particularly as far as set top boxes go.

While the Make in India or Digital India initiatives have failed to encourage many indigenous manufacturers of STBs, it is necessary not merely to give some tax concessions under these two schemes but also a tax holiday for some years for those who venture to beat the sale of Chinese STBs and encourage Indian STBs.

Earlier, the Entertainment Wing of FICCI had said in a pre-budget memorandum to Finance Minister Arun Jaitley that the sector should be allowed tax concessions under Section 80-IA of the Income Tax Act.

As the digitisation process and the deployment of STBs are heavy capital oriented sectors needing large investments, FICCI had said they should be allowed to set off accumulated losses and unabsorbed depreciation allowances to be carried forward as per Section 72 A of the Act.

One way of giving greater encouragement to indigenous STBs is to give the broadcast industry the same benefits that the manufacturing sector gets.

FICCI had in fact also said that the rate of taxes, which range from 30 - 70 per cent, especially the entertainment tax imposed by the states, over and above the service tax are punitive in nature. It is important that the overall taxation level is brought down for the sector as a whole.

State Entertainment tax legislations levy high taxes on the subscription earned by cable operators and DTH operators. The non-availability of credit of central taxes against the state taxes and vice versa increases the tax burden on the entertainment industry.

In addition to this, the Central Government has levied service tax at 14 per cent on the transfer of copyrights, which is already being taxed as ‘goods’ under the various state VAT legislations.

There is therefore need to rationalise taxes or rush through the Goods and Service Tax (GST) Bill to bring parity and clear snags in taxation.

With so many cases pending before TDSAT and the Telecom Regulatory Authority of India (TRAI) constantly being impleaded in such matters, the Government should provide a clarification that the payments made towards carriage fees are not in the nature of royalty or fees for technical services and TDS is required to be made on such payments as per section 194C of the Act.

The Indian media and entertainment industry grew from Rs 918 billion in 2013 to Rs 1026 billion in 2014, registering an overall growth of 11.7 per cent. The industry is estimated to achieve a growth rate of 13 per cent in 2015 to touch Rs 1159 billion. The sector is projected to grow at a healthy CAGR of 13.9 per cent to reach Rs 1964 billion by 2019.

The benefits of Phase I and II of DAS rollout, and continued Phase III rollout are expected to contribute significantly to strong continued growth in the TV sector revenues and its ability to invest in and monetise content. The sector is expected to grow at a CAGR of 15.5 per cent over the period 2015-2019.

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