The Hindu Business Line : Entertainment & Media: Demands that await a break

Budget 2008 brought only a marginal but welcome relief by scrapping the Customs duty on certain components of set-top boxes. While this would help in implementation of addressable systems, the FM should also have extended a similar reduction in import duties on modems,
IRD boxes, and production equipment, to give a boost to the E&M sector.

Mr Govardhan Purohit, Executive Director, PricewaterhouseCoopers.

A not-so-entertaining post-Budget hangover the E&M (entertainment and media) industry has to live with is that its demands have not been fully met by the Finance Minister.

“The industry, represented by the Indian Broadcasters Federation (IBF), had been appealing for a reduction in import duty on set-top boxes and modems, which are used for cable, direct-to-home (DTH) and IPTV (Internet protocol television) and oth er broadcast equipment, to be at par with Customs duties that IT (information technology) equipment enjoys,” says Mr Govardhan Purohit, Executive Director, PricewaterhouseCoopers.

Such a reduction, he explains, would reduce the cost of set-top boxes and encourage its use besides bringing more transparency in the system.

“If the number of end users of the cable service can be accurately determined, that would increase the revenues of the Government as well as the broadcasters, a win-win situation for all!”

However, Budget 2008 brought only a marginal but welcome relief by scrapping the Customs duty on certain components of set-top boxes, thereby reducing the costs.

While this would help in implementation of addressable systems, bring transparency in business, and lead to higher revenue generation for the Government, Mr Purohit is of the view that the Finance Minister should also have extended a similar reduction in import duties on modems, IRD (integrated receiver decoder) boxes, and production equipment, to give a boost to the E&M sector.

“Another relief to the entire service sector is the extension of amortisation of preliminary expenses (corporate deduction) under section 35D of the Income tax Act, 1961 (the Act), which hitherto was available only for manufacturing sector,” he adds, during the course of a recent e-mail interaction with Business Line.

“Yet, the Finance Minister has chosen to ignore certain other core issues of the E&M sector that were highlighted in the pre-Budget days,” observes Mr Purohit.

Excerpts from the interview:

On FBT.

What the industry needed was the scrapping of fringe benefit tax (FBT) or partial relief on expenditure incurred for travelling, food, and accommodation of unit members (which amounts to a substantial portion of production expenses).

These expenses run to the roots of the business of the production houses and can be compared to the manufacturing expenses incurred by a manufacturing concern. The E&M sector must be allowed a relief on FBT on these expenses.

On tax holiday.

The tax holiday benefits under Section 80IB of the Act and the SEZ Act should be extended to the E&M sector.

The production activity undertaken by production houses and the broadcasters brings into existence an end product which, by reasoning, is at a par with the manufacturing sector.

Non-availability of these benefits entails in depriving the E&M sector of what it genuinely deserves.

On taxation of non-resident sportspersons.

India is gearing up for the Commonwealth Games in 2010, and the Cricket World cup in 2011. Therefore, it is important to streamline the withholding tax provisions relating to sportspersons.

It is interesting that while Section 194B of the Act requires the payer to deduct taxes (at 30 per cent) on winnings from game of any sort, on the other hand, Section 194E of the Act prescribes a tax withholding rate of 10 per cent in respect of income arising to a non-resident sportsman from participation in any game.

To the extent of amounts awarded for winning in a game, there is an ambiguity as to whether a winning by a non-resident sportsman arising essentially from participation would be liable to tax deduction under Section 194B or Section 194E of the Act.

Further, adding on to the confusion over operation of Sections 194B and 194E of the Act, there is ambiguity on whether participation fee payable to a resident sportsperson is tax deductible or not. The Finance Minister may, therefore, consider bringing a clarificatory amendment in the Finance Bill 2008.

Certain threshold limit for resident sportsperson to avoid causing any undue hardship to less popular sports may also be considered.

On the digital media’s needs.

The need for more incentives for encouraging the digital media cinema has not been addressed in the Budget 2008. Digital cinema presents a revolutionary opportunity for investors, by creating and addressing new markets, for ways of distribution of content and digitisation, all of which are increasingly emerging as the key strategic imperatives for the E&M industry.

There is a need for granting deduction under Section 80IB of the Act to digital media cinema on the lines of deduction available to multiplex theatres.

D. MURALI

http://InterviewsInsights.blogspot.com

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