Associate Director - Tax & Regulatory services
The Indian Media and Entertainment (‘M&E’) industry is already more than a Rs 800 billion industry and is expected to outgrow the Indian economy with an expected cumulative annual growth rate of around 15% over the next four years. The M&E industry broadly comprises Television, Films, Print, Electronic Media, etc. Each of these segments has their own impact on the masses. To keep up the momentum, the industry deserves specific tax goodies in the upcoming Finance Bill, 2013 including incentivizing the industry and thereby providing an impetus to the industry and bolstering growth. Some of the changes that should be considered in the budget for the M&E industry are:
Theatrical revenues constitute a significant pie of the revenues from exploitation of film rights. Whilst in metro cities, multiplexes contribute considerably to the theatrical revenues, there is scope for the multiplexes to expand in Tier II and Tier III cities. To boost growth of multiplexes, the erstwhile benefit available (profit-linked deduction) under Section 80-IB of the Income Tax Act, 1961 (‘Act’) should be re-introduced in these cities.
The Indian tax law requires foreign performers, entertainers, etc., to obtain IT Clearance Certificate (‘TCC’) before departing from India. The procedure of obtaining TCC is time-consuming and onerous. An alternative mechanism for clearance or a monetary threshold for triggering TCC provisions must be provided to ease the administrative burden.
The Indian Government should take a cue from governments across the world such as Singapore, UK, Germany, South Africa, US and should work towards incentivizing the film industry through a well-defined plan, for both content creation and infrastructure. This will help the industry match up to its western counterpart and showcase Indian creative talents to the world. Taxation of Foreign Telecasting Companies (FTC) in India has been the subject matter of prolonged litigation. Earlier, FTCs (operating through an agent in India) were liable to tax, based on Circular no 742 issued by Central Board of Direct Taxes (10% of gross receipts meant for remittance abroad on a presumptive basis), which was subsequently withdrawn. Currently, there is an uncertainty with respect to profit attributable to India by FTCs and hence, guidance should be provided by way of specific provisions to determine taxable income of FTCs.
Filmed entertainment The Finance Minister in the previous Budget announced a centenary gift to the film industry by exempting service tax on temporary transfer of copyright in cinematograph films. However, absence of corresponding exemption on costs of filmmaking (fees paid to actors, directors, line producers, etc) has resulted in these service providers charging service tax. Such levy of service tax by the service providers has resultantly increased the cost of film-making by almost 10% . The film industry representatives have voiced their concern on such unfair treatment and await some relief.
The Central Board of Excise and Customs under the erstwhile service tax legislation, ie., prior to July 1, 2012, had exempted the services provided by a digital cinema service distributor from the purview of service tax. Films distributed by the digital cinema service distributor in a digitized encrypted format transmitted directly to a cinema theatre for exhibition were exempted from the levy of service tax. Such benefit was granted by the government to promote the secure distribution of films, thereby discouraging the chances of piracy and other media evils. However, with the introduction of the negative list based service tax legislation, such exemption has been withdrawn. Thus the exemption from service tax on services provided by a digital cinema service provider need to be restored.
India is increasingly becoming the outsourced post production service provider to many foreign film production houses. Generally, the content is temporarily imported into India for carrying out the post production activity. On completion of such activity, the processed content is re-exported for its use outside India. Due to lack of clarity in the service tax law, it appears that the post production services provided in respect of content temporarily imported into India for the purpose of re-export are likely to attract service tax in India. This is contrary to other back office service activities carried out in India where export benefit is provided. Further, it makes Indian post production service providers less competitive as compared to service providers in other countries. A change in the legislation or a clarification can be issued to effect this change.
A uniform indirect tax structure is proposed to be introduced in India under the title of ‘Goods and Services Tax’ (‘GST’). The GST seeks to subsume all major indirect taxes such as service tax, excise duty, VAT, etc. There are certain concerns about the current GST design as reflected in the 115th Constitutional Amendment Bill (‘Bill’). The Bill proposes to exclude the entertainment tax levied by the local bodies from the GST ambit. This proposal to allow the local bodies to levy entertainment tax (in addition to the GST) would impose a serious burden on the film industry, create significant practical difficulties and would be a hurdle in achieving the simplicity that GST seeks to achieve. Thus, it is imperative that the amended Bill to be tabled in Parliament should fully subsume entertainment tax, in whichever form, in the GST without creating a window for their levy at the local or State level.
The advertising industry predominantly works on the principal to agent model. Under the current service tax legislation in force, one of the determinants for the applicability of service tax is the location where the services are provided. Subject to other conditions being satisfied, so far as the location of provision of services is in India, the services provided by a service provider shall attract service tax. Under the stereotypical advertising agency model, it appears that the location of the provision of services by an advertising agency for the purpose of service tax shall always be India due to the framework of the service tax legislation. Given this, services, though provided to foreign clients, are not likely to qualify as export. In this regard, the Government can make necessary amendments in the service tax law to provide export benefits to advertising agency services being provided to foreign clients.
The Government, vide budget amendments in FY 2012-13, has exempted the services of players and coaches to recognized sport bodies/associations from levy of service tax. However, the services of players and coaches to private sports leagues/bodies continue to be liable to service tax, there by increasing the cost of conducting such private leagues. Further, such additional tax burden makes the sports league unprofitable to the franchise owners and thereby negatively impacts the emerging sports industry. The levy of service tax on sponsorship under reverse charge mechanism limits the scope to off-set the service tax paid on inputs which leads to blockage of huge funds in form of unutilized service tax credit. Thus, the government should include the services of players and coaches in relation to sports activity under the exemption from levy of service tax and should amend the law to remove the reverse charge levy of service tax on sponsorship services provided by a corporate organization to another corporate organization. To sum up, there is a wide scope of changes that could help the M&E industry in a positive way and we sincerely hope for the industry to receive its due share, to move up the growth trajectory.
(Views expressed are personal)