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Much Ado About Nothing

The much-anticipated Modi Budget missed many marks for the film industry

All eyes were on Finance Minister Arun Jaitley when he presented the Union Budget to the Indian Parliament on Thursday, July 10, 2014. With the promise of ‘acche din aane wale hain’, the media and entertainment industry was awaiting the Union Budget with bated breath as it was the first major economic step that the newly appointed Narendra Modi government took, post its election.

Like every other industry, the entertainment industry was also hopeful that bountiful surprises would come in the form of tax rebates and better funding.

According to the industry, the key areas which required the FM’s attention were relief on GST (goods and service tax) by bringing on board all state governments in adopting GST. The industry also wanted a hike in the FDI in the entertainment sector. Last year, the government had also announced a hike in service tax of import duty on set-top boxes, which most DTH companies wanted to be brought down this year.

Although the Budget this year might have evoked mixed reactions, the areas in the entertainment sector that the government did tackle were:

• Introduction of service tax on the sale of ad space for mobile and Internet

• A new channel, Kisan TV, to be launched by Doordarshan with an investment of ` 100 crore to give real-time information on new farming techniques, water conservation and organic farming

• Launch of Aruna Prabha, a new TV channel for the North East to highlight the rich culture of the seven states

• Basic custom duty on LCD and LEDs below 19 inch reduced to zero from the earlier 10 per cent

• Announcement of measures to encourage manufacture of LCD/LED panels of TVs.

• Proposed Rs 100 crore for Community radio stations

• Rs 500 crore set aside for National Rural Internet and Technology Mission

• CRT TVs exempted from customs

Let’s ask industry experts for their opinion on the Union Budget 2014:

Rakesh Jariwala, Partner, EY

Overall, the Modi budget seems to be balanced and growth-oriented. The budget has announced the setting up of a fund to provide finance as venture capital and soft loans to start-ups. Start-ups in the M&E space should benefit from this fund as it would be an additional source for them to raise finances.

The introduction of service tax on the sale of ad space across platforms (except print media) will have a direct impact on the M&E sector. To date, service tax was not applicable to sale of ad space for the Internet and mobile media. The impact of this additional service tax levy would really hinge on the advertisers’ ability to absorb the input service tax, which otherwise will become an additional cost for advertisers.

The M&E sector has been subject to immense litigation on various direct and indirect tax controversies, which extend to transfer pricing, withholding taxes, characterisation issues, etc. This budget has introduced measures which could reduce the litigation both past and in respect of proposed transactions. These measures include rollback of Advance Pricing Agreements to preceding four years, extension of advance ruling mechanism to resident for income tax matters and resident private companies for service tax matters, simplification of transfer pricing rules, measures to make the settlement commission authority more effective for income tax litigation, etc.

Ashish Pherwani, Partner & Radio Segment Champion, EY

The proposal to grow community radio is an excellent initiative to enable social good, particularly for niche and specific sections of society. The allocation can be used to set up stations and their on-going operations. This will help bridge the gap between the number of licences issued and the far fewer number of community radio stations that have become operational. Since community radio will be airing news in some form or the other, monitoring the content of these stations will be important.

Ratan Jain, Director, VENUS Records & Tapes

We were hoping the government would focus on the entertainment tax issue. As we all know, entertainment tax in Maharashtra is the highest. But since it is a subjective matter, it is more relevant for the State government to look into this issue. The rest of the issues, like easing shooting at foreign locations, could have been addressed but barely any issues relating to the M&E sectors were tackled this time.

Kumar Taurani, Chairman & MD, TIPS Industries

The Modi government has announced only a basic outline of the budget. I think we should give this government some time and I am sure within two years, the whole country’s infrastructure will improve. The entertainment industry is thriving on good films and, lately, there have been many hits. So it’s a bright time for the industry.

Smita Jha, Leader – Entertainment and Media, PwC India

We welcome the announcements made in the Union Budget 2014 in the E&M sector, especially those relating to budgetary allocations for the sports sector and the National Centre for Excellence for animation, gaming and visual effects.

You would agree with me that the sports sector in India is in need of transformation. Budgetary allocations towards upgrading sports infrastructure, training, nurturing talent and setting up a sports university are in the right direction although the funds allocated are significantly less than what will be required. However, we welcome the recognition from the government that this sector requires significant investment.

We also welcome the FM’s comments on promoting FDI and expect that it will translate into 100 per cent FDI being allowed in sectors of the media industry such as television broadcasting, cable and DTH, a proposal for which is pending with the government. Expediting the FDI increase will provide a much-needed stimulus to Phases III and IV of digitisation. We also believe the reduction in customs duty on LCD and LEC of sub-19 panels will indirectly provide an impetus to the national digitisation agenda.

Budgetary allocations for promoting community radio are also welcome, although the sector policies need re-visiting to ensure the viability of these stations on a long-term basis. While some sections of the industry are not happy with online and mobile advertising being included in the service tax ambit, we believe the philosophy of pruning the negative list to promote GST in the industry is in the right direction and thus the inclusion of such services in the taxation is a small price to pay in the short-term.

The announcement of the launch of Kisan TV and Aruna Prabha TV are also welcome in the context of their respective situations but we hope these channels are commercially viable and do not add to the burden on public service broadcaster, Prasar Bharati, which is already under severe financial pressure.

Kulmeet Makkar, CEO, The Film and Television Producers Guild of India Limited

The budget presented by the new government has many positives for infrastructure growth in the country and a series of new initiatives has been announced by the finance minister. But it is unfortunate that there was no mention of the film industry in the budget speech. I wish the government starts taking us seriously and treats us like any other service industry. The film industry has enormous potential to grow, which can only be achieved by rationalising and simplifying the tax structure and a road map to build a strong distribution footprint by opening more cinemas in the country by offering a tax holiday for more investment in this sector. I feel, it’s a missed opportunity and perhaps we are to blame for not sensitising the government to the serious challenges faced by the industry and at the contribution the film industry can make towards generating employment and tourism opportunities.

Uday Singh, Managing Director, Motion Picture Dist Association India Pvt. Ltd.

We welcome the Finance Minister’s commitment to clear the Goods and Service Tax (GST) by the end of this year. We look forward to all indirect taxes (service tax, excise duty, VAT etc.), including local body taxes to be subsumed into GST. A uniform tax structure will help pave the way for industry growth, which is stymied by a multiplicity of taxes across various sectors and states.

Neeraj Roy, MD & CEO, Hungama Digital Media Entertainment

While it is very encouraging to see the government paying attention to the Internet and support of animation and gaming, I view the initial allocations as a small step in the right direction. China has a near $ 1 trillion Internet economy; India will transition from 2G to 4G and add another 400 million mobile Internet users over the next three years. We need an unprecedented push towards digital for a significantly higher consumer adoption as it will spark productivity across sectors. The aspect of bringing back online advertising into the service tax ambit, while it is still a fledgling segment, is a conflicting decision and not a welcome move.

Sandeep Gupta, CFO, B4U Channel

The budget seems to be a pre-reform budget and appears to have nothing really in it for the broadcasting industry. With overall growth in the economy, there should be growth in business. One positive that may be a boon to the media industry is that with the reduction of customs duty on televisions, it would increase the TV owning households as more people may now buy television sets. Also, there would be more opportunities to exploit content with the push for broadband connectivity and power in the rural areas.

Tarun Katial, CEO, Reliance Broadcast Network

With not much for the media and entertainment industry in the budget, we are anticipating further announcements in line with the policy initiatives, especially for the radio sector. On the television front, the ruling on customs duties for LCD and LED televisions being completely scraped to nil, compared to the earlier 10 per cent, will result in a significant boost to the consumption of television sets. The decision would have an impact on converting single TV households to double TV households, resulting in an increase in the number of TV viewers, which is good for the industry.

Sahab Narain, Director, Finance, NFDC India

The Union budget is a balanced budget, taking directional steps towards better growth along with second generation reforms. Among various steps taken for the M&E sector, National Rural Internet and Technology Mission is a good step and will take the country towards a ‘Digital India’. In the long term, it will create demand for digital content. The government’s commitment to roll out GST will also solve industry’s long-pending concern of multiple tax burden.

Nisha Narayanan, COO, RED FM

There is nothing in this budget for the radio industry, except for an allocation of Rs 100 crore for community radio. The industry is now looking forward to the speedy implementation of Phase 3 policy, so that the radio industry will reach its potential. We hope that all impediments will be removed and the bidding process starts soon.

Preetesh Chouhan, VP-APAC, Vdopia Inc

Vdopia is aware of the service tax being levied on online and mobile advertising but we are awaiting official confirmation and details. As a video advertising company, our numbers show that we are witnessing amazing organic growth among both online and mobile audiences and this is not going to change. So I believe that the tax levied will not affect how brands are allocating spends on digital media. It could be a good opportunity to see if we have made the final transition from niche to mainstream advertising.

Jaiprakash Naidu, Executive Director, Prasad Film Labs

The waiver of 4 per cent SAD (Special Added Duty) on computers and reduction of duties on hardware and software will definitely help VFX/Digital post houses to reduce their investments and to upgrade. It will also encourage new techno entrepreneurs who are looking to self-invest in small ventures. Although the concessions are not substantial, the VFX segment expects more concessions if Indian Post Houses are to compete with Hollywood and other Foreign Post Houses and become global.

Jayantilal Gada, Chairman, Pen India Pvt Ltd

The budget had nothing for the entertainment industry, which contributes huge revenues to the government’s coffers. The government should have looked into this. I don’t think the budget will help the industry in any way.

Ajay Bahl, Director

It’s a very good budget for the common man. However, there was very little focus on the media and entertainment industry. We need to wait and watch to see how these new initiatives announced by the government pan out over the new few months. But I am positive that the new government will build better economic infrastructure for the country.

Subhash Ghai, Chairman, Mukta Arts

I am glad that the Modi government budget declared two of government run film Institutes in Pune and Kolkata of National importance to develop cinema and entertainment culture in India. I wish the government of Maharshtra could recognise and support its own initiative 14 years back under Congress by opening an International Film Institute Whistling Woods in Film City under private public partnership which is run by best of professionals from film industry and declared as one of the top global film school in world. And today it’s breathing its breath in the court because of government irregularities. Hope true vision prevails and government saves the international institute initiated by themselves in 2000 and let high skill education survive and grow.

 

 


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