Media & Entertainment yet to find favour

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: The media and entertainment industry (M&E industry) has seen significant activity in the recent past. As the Indian economic growth matures in to long-term sustainability, the industry is set to play a significant role in such a growth, and is evidenced by the fact that global media giants queuing up to garner a greater share of this fast growing segment.

The burgeoning growth brings with itself challenges that are complex and unprecedented. Not only has the Indian tax legislation not kept pace with the changing dynamics of emerging business models, the industry itself is guilty of not appreciating the complexities involved.

From the income tax perspective, the taxability of broadcasting companies and film distribution companies, applicability of withholding tax provisions, and connected issues, present significant challenges in business operations, especially with the growth of cross border transactions in this sector.

It was expected that Budget 2008 would address some of these key concerns and ease out the prevailing uncertainty. However, like the past few years, the industry is yet to find favour with the ministry of finance.

The proposals relating to indirect taxes also do not contain any significant policy announcements or initiatives undertaken. Some marginal amendments, however, do impact the industry. The Cenvat rules, for example, have been rationalised to an extent by dispensing with the restriction on utilisation of cenvat credit in case of service providers rendering both taxable and exempt services. Such service providers now have the option to either pay 8% of the value of exempted services or proportionately reverse the cenvat credit attributable to inputs/input services used in providing exempt services. This would significantly benefit industry players such as broadcasting companies, which often provide a bouquet of taxable and exempt services.

Even the restriction on removal of capital goods outside the premises of the service provider has been withdrawn. This amendment would benefit companies in the DTH space whose assets are commonly used at customer premises.

As far as customs duty is concerned, there has been no change in the peak rate of customs duty; however, certain existing concessional duty rates have been extended to SMPS power boards and IR modules and MP3, MP4 and MPEG players having audio and video reception facilities, respectively.

The excise duty rate has been reduced from 16% to 14% across the board. Specifically, the concessional excise duty rate of 8% has been extended to MP3/ MP4 and MPEG players having audio and video reception facility. The rate of central sales tax has also been reduced from 3% to 2%.

On the whole, Budget 2008 has provided some relief to the M&E Industry. However, industry players would continue to operate in a realm of uncertainty, posing significant challenges and distractions to growth, at least for a year more!