The Hindu Business Line : Music industry seeks reclassification under VAT regime

INCREASING piracy, menace of remixes, high television penetration and grey market eating into the entertainment industry, the music industry is faced with a new problem of FM radio chopping into their business.

As if this were not enough, while the Rs 1,200-crore industry has started sliding over the last three years, with losses estimated at about Rs 1,800 crore (revenue loss), it has yet another problem of high tax impost, which the industry wants to be thrashed out when the VAT (value added tax) regime comes through by reclassification and standardised tax system.

The President of Universal Music India, Mr. V.J. Lazarus, who is also the President of the Indian Music Industry and President of Phonographic Performance Association, representing the publishing industry, told Business Line that it was time the Government addressed the needs of this entertainment industry in which about half-a-million people directly and 2-million are indirectly dependent.

Historically, Mr Lazarus said the music industry was classified as luxury item along with electronic goods and attracted high taxes. When long play records and record players were popular, the market was small and there was only one major player (HMV) and this was not questioned. But the situation has changed dramatically over the years.

So how can we address this? Like the software industry, where there are no excise or customs duties, the music industry also did get this relief. However, it is faced with sales tax in various States ranging from 12 per cent to 15 per cent. This was articulated with the Empowered Committee on VAT recently, Mr Lazarus said.

The music industry ought to be categorised from electrical and electronic machinery category to publishing industry. Strangely, the Chapter 85 of Exim Policy classifies the pre-recorded audiocassettes and CDs under electrical and electronic machinery. And, the music industry is concerned about the sales tax/VAT implications that this classification brings with it.

"Music companies believe that what is produced by the industry involves a considerable amount of intellectual property (IP) and therefore, such items should be considered as music, or audio software rather than being bundled together with electrical and electronic machinery. Ideally, the audio software industry should be seen in the same light as the publishing industry. The cost structure of the publishing industry also largely consists of IP as in the music industry and the products of publishing industry are taxed at nil rate," he explained.