Direct-to-home (DTH) players consider the reduction in Central Value Added Tax (Cenvat) from 14% to 10% as part of the stimulus package offered by government on Sunday as a welcome move. Operators may now pass on the benefits to the consumers and introduce more price cuts. Recently, FE reported that weakening rupee against the dollar may increase the cost burden of set-top boxes (STBs), which are imported by DTH operators, resulting in the latter increasing subscription rates by nearly 15%. The price hike was expected from the first week of December. Almost three million STBs are imported by DTH operators in the country every year from Korea, China and other South East Asian markets.
Currently, DTH operators are subject to multiple taxation including license fees of 10% on gross revenue to the Information & Broadcast (I&B) ministry, and 12.36% service tax charged on the subscription fee revenue earned by the DTH operator. Entertainment tax in the range of 10-20% is collected by different states on subscription revenue earned by the service provider. Also, there is about 12.5% VAT levied on the purchase of hardware by the consumer.
Jawahar Goel, managing director, Dish TV the largest player in the segment said, ?We welcome the government’s decision to reduce Cenvat from 14% to 10% as it will help contain the spiraling cost of STBs, especially for the DTH industry. This will have an impact on the capital expansion plans of the sector and will improve the bottomlines.?
Goel added that currently, DTH players are reeling under intense pressure from multiple taxes by the centre and the states. The tax element of DTH companies goes up as high as 40% and includes service tax, entertainment tax, VAT, license fee where as no other services are burdened with these many taxes. ?The subscribers are taxed entertainment tax on account of news content, that they are watching in the comfort of their home. This needs to be corrected. Further rationalisation of taxes can help pass on benefits to consumers,? said Goel.
Vikram Kaushik, MD & CEO, Tata Sky, said, ?The DTH industry has been offering huge price discounts to the consumer. The industry has been chronically saddled with a complex and burdensome tax structure. There is double taxation where despite the levy of service tax many states also impose entertainment tax.? He said that the latest initiative on reduction is a welcome move and will surely mitigate the tax burden on the DTH industry.
While Reliance Big TV DTH declined to comment, sources close to the company said that the current duty rationalisation will not provide any immediate benefit to DTH customers as there has not been any significant change in the dollar strength. All DTH operators are currently importing the set-top-boxes. ?In the last few months, the rupee has weakened by over 25% thus raising the costs of STBs. The current reduction in VAT will not provide immediate relief. The DTH industry will take sometime to recover its investments,? said the source.