– By Himanshu Parekh and Krishnan Venkatasubramanian
The Indian media and entertainment (M&E) industry is growing significantly, thanks to the increasing popularity of OTT platforms, impetus to digital infrastructure by the government and the craze for cinema amongst people.
On the tax front, while the government has undertaken several tax reforms over the years, there are still certain pain points of the M&E industry, which need to be addressed in the upcoming Union Budget.
Some of the key pain points are as under:
The M&E industry is grappling with a few issues on the TDS front. As per the tax law, the taxpayers are allowed to claim credit of TDS only if the corresponding income is offered to tax in the tax return for that year. For a variety of reasons, there can be timing differences between the year in which tax is deducted by the deductor and the corresponding income is offered to tax by the deduce. Given the large volume of transactions, it puts an onerous burden on the taxpayers to reconcile the TDS with the corresponding income and the year in which it is offered to tax. The Income-tax Act may be suitably amended to provide that the TDS credit reflected in Form 26AS for a particular year be allowed to the taxpayers during that relevant year under consideration.
Another pain point on the TDS front pertains to advertising agencies. The advertising agency while raising invoice on its clients charges a lump sum amount which comprises the Advertisement fees (payable to the media) and their fees. The advertisers then deduct tax on the gross billing amount (of which only a small portion constitutes income of the advertising agency). In other words, the advertising agencies suffer TDS on the advertisement charges as well, which income belongs to the media. On account of this, the actual tax liability of such agencies is significantly less than the TDS suffered by them, which then leads to a huge blockage of funds. Hence, there exists a pressing need of the advertising agencies for the government to reduce the TDS rate on amounts paid by advertisers to them for placement of advertisements, so as to ease their cash flow issue.
Moving on, several M&E industry players have been availing services from foreign satellites for transmission of their TV channels and to data centers for hosting and downloading of their content. In this regard, the tax authorities have been holding that payment towards the above services is in the nature of royalty / fees for technical services and thus is subject to withholding tax. However, given that these are standard services with no human intervention involved, it should be clarified by the government that such payments are not in the nature of royalty / fees for technical service and thus are not subject to withholding tax in India.
In case of amalgamation of companies, losses of the amalgamating company are allowed to be transferred to the amalgamated company only for a certain class of companies, which does not include companies in the M&E sector. One of the long-standing demands of the M&E sector is that the provisions should be amended to allow the benefit of carry forward of losses to the companies in the M&E sector as well.
On the GST front, the Budget is not expected to make new announcements, as the same is addressed by the GST Council meetings. However, the upcoming Budget could look at introducing amendments in the GST law pertaining to the proposals announced in the recently concluded 53rd GST Council meeting. These amendments aimed to address industry concerns, can include, amongst others, provisions towards amnesty scheme for waiver of interest and penalties, reducing pre-deposit for filing appeals, allowing claim of Input Tax Credit upto November 2021 for prior years. With these amendments, the industry can look forward to reducing ongoing litigations.
A key expectation from the Government, which was not covered in the recent Council meeting, is the taxability for online games. The industry is advocating 28% GST on Gross Gaming Revenue, as opposed to the current system of 28% on the total amount deposited by the players.
In all, the government has already set its intentions clear to steer India towards being ‘Viksit Bharat’ by 2047. Certain favourable policy and tax announcements for the M&E sector will certainly help fuel growth of the M&E sector and take India closer to its goal of becoming ‘Viksit Bharat’.
(Himanshu Parekh is the Partner, Tax at KPMG in India and Krishnan Venkatasubramanian is a Chartered Accountant.)
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