With service tax rates retained and project import status bestowed for setting up digital head-ends at a concessional customs duty of 5%, full exemption of special additional duty.
Budget Provisions
The budget proposes to increase the MAT limit from 15% to 18%.
The budget proposes to reduce surcharge on domestic companies to 7.5% from 10%.
The budget proposes to rationalize the customs duty on various carriers viz: electronic media and cinematographic film in importing digital masters of films for duplication and distribution by charging customs duty only on the value of the carrier medium. The same is being extended to music and gaming software (other than pre-packaged form) for retail sale imported on digital media for duplication.
The budget proposes to provide project import status for the setting up of digital head-ends at a concessional customs duty of 5% with full exemption from special additional duty.
The budget proposes full exemption from basic customs duty and CVD on promotional material like trailors, making of films etc. imported free of cost in the form of electronic promotion kits (EPK)/Betacams.
The budget proposes to include in taxable service 'Intellectual Property Right" copyrights on (a) cinematographic films and (b) sound recording under the ambit of service tax. However, copyright on original literary, dramatic, musical and artistic work would continue to remain outside the scope of service tax. Earlier copyright was not part of taxable IPR service.
The budget proposes to change the personal tax slab rates.
Industry Expectations
The industry recommends the reduction of import duty on set top boxes of 5% to NIL.
The industry recommends reduction of excise duty on set top box for free to air transmission from 8% to nil.
On the service tax front, the industry is demanding that parity be made between broadcasters and print media by abolishing service tax of 10.3% on broadcaster similar to that of print media.
The industry recommends elimination of dividend distribution tax of 16.995% as it has resulted in multiple taxation of profits distributed as dividends, particularly in a case where the corporate group had a holding company and its step-down subsidiary.
The industry recommends liberalization of FDI norms in segments like DTH, cable and radio.
Budget Impact
The project import status for set up of head-ends and lower customs duty and nil SAD would be a booster for the multi service operators (MSO) who would need to set head-ends at various places as they grow geographically and as the number of channels grow.
The decrease in the surcharge would lead to lower tax incidence and lower cash outflow.
The increase in the MAT rate from 15% to 18% would be earnings neutral as current tax would increase compensated by increase in deferred tax asset and cash flow negative. The Company would have to pay tax at higher MAT rate but would get credit for the same in the future.
Change in the tax structure for Individuals or Hindu Undivided families leading to lower incidence would have the biggest benefit to the media & entertainment sector with the purchasing power of consumers increasing.
The exemption from customs duty and CVD of various promotional material and also rationalization of customs duty on import for duplication and distribution of films, music and games would lead to lower costs and clarity for the Indian distributors.
Stocks to watch
UTV Software, Den Network, WWIL, Sun TV Network, Hathway Cable and Datacom
Outlook
On an overall basis, the budget was positive for the Entertainment Sector. Taking into account the growth in digitization, the lower customs duty on set up of head-ends and other indirect tax measures were a big positive. The biggest benefit of the budget has been the lowering of tax incidence on the individuals and Hindu undivided families, which would mean higher spending power. If the budget would have removed the customs duty on STBs, the sector would have been the happiest.
