In an indication that the sector is ready for mergers in near future, the broadcasting industry has sought smoother and aiding norms for M&A activities from the government. The representatives of broadcasting industry met the finance minister on June 13 and the revenue secretary on June 15 . They sought for an amendment or expansion in the Income Tax Act that would facilitate mergers and acquisitions in the broadcasting sector.
The industry captains have sought an amendment or expansion of definition in article 72A of the Income Tax Act, 1961 that enables an amalgamated company to carry forward and set off accumulated loss and unabsorbed depreciation allowance after the merger. The industry argues that at the time when the Act was put in place (1961), the definition covered only industrial undertakings as prospects of mergers and acquisition in sectors like broadcasting was almost nil. It also points out that print media does get covered under the Act. ?Section 72A of the Income Tax Act, 1961, provides an incentive to the 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. It appears that when this definition was introduced, the broadcasting industry was in a nascent stage and probably that is the reason it was not included in the definition of the industrial undertaking though print media does get covered under this definition,? the industry captains have conveyed to the finance minister.
Alleging discrimination vis-a-vis their print counterparts, the broadcasting industry has sought relief in matters of service tax and DAVP rates. ?Television industry is the electronic version of the print media providing information, entertainment and education to Indians. Since the print media that accounts for 53% of total ad revenue of Rs 21,000 crore doesn?t attract service tax, the broadcasting media should also be exempted from service tax,? argued industry representatives. The broadcasters pointed out that India?s ad spend to GDP ratio that stands at 0.34% is one of the lowest in the world (USA at1.3%, Australia at 1.0% and Malaysia, South Korea, Singapore in the range of 0.8% to 1.0%).
The electronic media also wants the hiked DAVP rates extended to them. The government as part of the stimulus package for the media, announced a 10% hike in advertisement rates as ?special relief? subject to documentary proof of loss of revenue in non-governmental advertisements with a waiver of 15% agency commission on DAVP advertisements for the period between February 28 to June 30. The electronic media wants similar benefits to be extended to their sector.
The broadcasting players cited the Trai Act, 2004 through which the scope of the definition ?telecommunication services? has been expanded to include the ?broadcasting and cable services? also and argued that incentives and concessions granted to the IT & telecom sectors, should be ipso-facto extended to broadcasting and cable services. For instance, as of now, custom duty CVD and cess combined for broadcast equipment is charged at 24% whereas it is only 15% for computers and 4% for cell phones.
Additionally, the industry has requested the government to exempt CVD, cess charges and additional duty, excise duty on set top boxes for next 10 years. This will help in implementation of addressable systems, will bring transparency in business and will lead to higher revenue for the government by the way of taxes, industry players feel. The information and broadcasting ministry has endorsed this demand of industry and has requested the finance ministry to consider a five-year zero duty regime for set-top-boxes.
The broadcasters also requested with the minister to correct the multiple taxation situation that they are facing currently. In addition to service tax, the television industry is also subjected to differential entertainment tax rates by various states and could be charged at a rate of 40%. This along with service tax alone means a taxation level of 37.5% (assuming 25% as average entertainment tax) for the sector.
Seeking a level playing ground with the telecom and IT industry in custom duty , the broadcasters point out that the base custom duty on broadcasting equipments range between 7.5%-15% while for telecom equipments it varies from 0%-5% and most of the IT products including software are exempted.
The sector has also sought exemption from the fringe benefit tax and infrastructure status for the industry.
