Blogger’s Park: Steering M&E back on track

January 29, 2021 6:54 AM

A look at the key expectations from Budget 2021

Given the evolving business models (such as the move to B2C), there is a thrust on consolidations within the M&E industryGiven the evolving business models (such as the move to B2C), there is a thrust on consolidations within the M&E industry

By Prashant Bhojwani

The Indian media and entertainment (M&E) industry has been impacted in a varied manner in 2020, on account of the pandemic. Whilst the streaming sector (over-the-top services) has witnessed growth, theatres were shut for most part of the year, and film production, too, was suspended for a while. Considering this, it is imperative for the government to provide much-needed support to the M&E industry, so that it is back on the growth trajectory witnessed in the past years. Now, with everyone’s eyes on the Budget 2021 proposals, here are the key expectations of the industry:

Tax holiday: India is the largest producer of films globally — producing approximately 2,000 films annually. In spite of this, India’s screen density is a mere six screens per million population (vis-à-vis China, which has a screen density of 30), and with the impact on account of the pandemic, more screens may shut down. A reduction in the screen count is something that India cannot afford. Given this backdrop, the government should consider introducing a tax holiday for new theatres [similar to section 80-IB (7A) of the Income-tax Act, 1961] and a lower tax rate for existing theatres, enabling the exhibition business to recuperate.

Mergers and acquisitions: Industrial undertakings are allowed to carry forward tax losses in case of mergers or amalgamations. The definition of industrial undertaking includes manufacturing of computer software or providing telecommunication services. However, sectors such as broadcasting and radio have not been included under this definition. Accordingly, the benefit of tax losses carry-forward is currently not available for M&E players in cases of consolidation.

Given the evolving business models (such as the move to B2C), there is a thrust on consolidations within the M&E industry. Considering this, and the convergence of the M&E industry with telecommunications, the government should consider including broadcasting and radio under the definition of industrial undertaking and allow them to carry forward tax losses. This would facilitate consolidations in the broadcasting and radio sectors.

Infrastructure status: Broadcasting is a capital-intensive sector and requires significant investment of funds on account of digitisation, upgrade of technology and infrastructure architecture. Currently, the broadcasting sector does not enjoy infrastructure status; the government should consider granting such a status as it would, among other things, aid in financing future growth and help the sector achieve its potential.

Foreign direct investment (FDI) in print: Currently, FDI in print (news and current affairs) is capped at 26%. This sector was dealing with the impact of digitalisation and, now, has to also deal with the impact of the pandemic. Considering the trend of liberalising the FDI policy and the sector’s need for investments in digital assets, the government should consider increasing the FDI cap for print to 49%. This would help in attracting foreign investments into the sector.

Goods and services tax (GST): Admission to the exhibition of cinematograph films is subject to GST at 12-18%, depending on the price of the ticket. In addition to GST, the right to levy and collect tax has also been granted to the local authorities; this right continues even after the implementation of GST. The government must ensure that such local bodies do not levy additional tax on the exhibition of films.

As the M&E industry is grappling with the impact of the pandemic, government reforms are of utmost importance for the industry to get back on the growth trajectory. Hopefully, on February 1, 2021, when the Budget proposals are presented, we would take a significant step in that direction.

The author is principal, Dhruva Advisors LLP

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