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Filmmakers met FM; oppose any move to impose service tax

New Delhi: Amid talk that service tax could be imposed on film tickets in the coming budget, a delegation of film makers along with Information and Broadcasting Minister Ambika Soni has met Finance Minister Pranab Mukherjee. After the meeting, the delegation which included Mahesh Bhatt, his brother Mukesh Bhatt, Ramesh Sippy and others, said they they had conveyed their concern on any move to impose service tax on films in the coming budget. "We have put forth our concern to the honourable finance minister through the Minister of Information and Broadcasting. The finance minister gave a very patient hearing to each and every member," Mahesh Bhatt told reporters here. The film makers said that though they were satisfied with their meeting with the finance minister, what the budget holds for them will only be known on the day it is presented in Parliament. "Since it is budget time he cannot speak and it will come out in Parliament when he makes his speech there," Bhatt said. Information and Broadcasting Minister Ambika Soni said that "the film industry wanted to present its concerns regarding service tax to the finance minister who had listened to them very attentively."

Expectations: Entertainment Sector


Multiplexes On Multiplexes, Government should consider the following suggestions: Multiplex operators should be exempted from levy of service tax on property rentals, till GST is introduced, and entertainment tax is fully subsumed in GST, to result in seamless pass-through of such indirect taxes. Multiplex operators should be exempted from levy of service tax on payments made by them to distributors for exploitation of cinematographic rights, till GST is introduced, and entertainment tax is subsumed in GST, to result in seamless pass-through of these indirect taxes. Cinema exhibitors should be exempted from levying service tax on Intellectual Property Rights to be transferred to exhibitors (Multiplex owners).

Multiplex operators should be exempted from payment of duties on import of cinema equipment, till GST is introduced, and entertainment tax is subsumed in GST, to result in seamless pass-through of these indirect taxes. The Industry should be entitled to take full credit of certain input services which are commonly used for non-taxable as well as taxable activities Film Sector Government should consider the following suggestions: Government should not levy both VAT and Service tax on Copyright services to avoid multiple taxation on the same item. Necessary equipment and hardware for film production must be allowed to be imported without the additional burden of customs duty. The Draft Constitution Amendment Bill, 2011 for GST allows the local bodies to levy a supplementary entertainment tax, over and above the GST. The additional tax would impose a significant burden on the film industry. To avoid complexities of taxation which is one of the main objectives of GST, it is recommended that Entertainment tax should be fully subsumed in the GST without creating a window for their levy at the local level. Animation, Gaming & VFX Industry On Animation, Gaming & VFX Industry the following suggestions are for consideration: On the lines of IITs and IIMs, Government should consider setting up Centers of Excellence for the Animation, Gaming & VFX Industry which also offers opportunities for applied and commercial and others type of arts. 10 Years Tax Holiday for Animation Industry. Lifting of service tax on studios developing original content. Exemption of Import Duty on Hardware for a Period of 10 Years. Provision of 50% reimbursable MDA (Market Development Assistance) for travel and registration fees to international market events. Government to extend support under MDA/MAI activity exhibiting Indian companies, by setting Indian Pavilions in the world markets. What is needed is to help bring local production companies to international markets, collected and disseminate information and help support the infrastructure needed for a healthy media market to develop. To promote domestic gaming market, Excise Duty on local manufacture should be brought down from 12.5% to 0% (similar to film and music industry). This will enable CVD to be brought to zero also. The effective reduction in taxes would be around 15%. Import duty on consoles (Gaming

hardware) which will increase the installed base to enable the local developer ecosystem to flourish needs to be brought down to 0%. Mandate should be given to commercial bankers to treat animation sector on priority. This will enable them to provide funds at concessional rate. Encouragement should be given to entities through reduced tax rates/incentives (exempt withholding taxes for overseas payments to foreign artists stationed overseas) for exploitation of own developed content in overseas markets. The MAT applicability for units undertaking animation work in SEZ should be withdrawn to encourage export of animated contents. The government should introduce subsidies like a CNC Fund (in France) to fund animated content co-produced and developed in India to enable Indian producers to be competitive on a global scale.

Services provided by TV and Radio broadcaster: For TV and Radio Broadcasting, following suggestions should be considered: Digitization with addressability There is a need to provide fillip to the importation and indigenous manufacture of set top boxes; towards this end import and excise duties on set top boxes should be subjected to a moratorium for three years coinciding with the sun set date for analog transmission as laid down by the TRAI in its latest recommendations on digitization. The service tax applicable to the DTH industry should be reduced by 4 percent for three years in order for it to sustain amid the multiple taxation regime afflicting the sector as some States have levied entertainment taxes on such services as well. Infrastructure Status to the Cable sector: The Cable sector needs to be given Infrastructure status, in order to garner domestic funding. The Cable industry that has grown for the last twenty years in an unorganized manner has been catering to 90 million households by deploying out dated analog technology. This has resulted in considerable loss to the government as tax collections have suffered owing to large scale under declaration of subscriber base by the cable sector. This lack of transparency has resulted in banks and financial institutions steering clear from the cable sector, thereby impairing quality of service, technological up-gradation and the required switchover to digitization with addressability. TRAI has conservatively estimated that a sum of INR 50000 Crores is required to ensure the transition from analog to digital technology in the cable sector. Granting of infrastructure status to the broadcast infrastructure providers namely teleport operators, multi system operators, local cable operators, DTH operators, et al, shall go a long way to ensure well rounded growth of the sector. Rationalization of FDI in broadcasting sector: The FDI limits for News and Current Affairs need to be raised to at least 49 percent as per the sectoral regulator TRAIs recommendations of 2008. It is also imperative to align the foreign investment caps in broadcasting carriage with that of Telecom, in keeping with a technology agnostic approach so that the industry can achieve its full potential. Also it is a settled economic position that FDI is a far more superior purveyor of funding compared to other

means of foreign investments given its inbuilt long term commitment. Levy of both Service tax and VAT on Copyright services: The Finance Act 2010 has introduced a new Service Tax category i.e. Cinematographic / Copyrights services whereby under the taxing entry for copyright services , temporary transfer of or permitting use of / enjoyment of copyright has been made liable for Service Tax. Effectively it appears that all form of exploitation of copyright by the rights holder, will attract the levy of Service Tax. State governments have already classified copyright as goods; hence transfer of copyright is already liable for payment of VAT / CST. Now, with the introduction of this service tax category, the same transaction attracts both levies i.e. Service Tax and VAT, leading to double taxation, causing great hardship to the industry. So, there should be a mechanism to avoid this double taxation. Wealth tax on vacant land: Section 2ea of Wealth Tax Act defines the type of assets which are liable for payment of wealth tax, which among other assets, includes urban land as well. The section further excludes any unused land held by the assesses for industrial purpose for a period of two years from the date of acquisition. Considering the changing face of service industry on account of size and infrastructure requirements, the exemption benefit of initial two years should be allowed to land held for all business purposes instead of limiting the exemption to industrial purposes only. Serve from India Scheme (SFIS): In order to accelerate growth in export of services, Government of India has allowed an incentive in the form of SFIS to service exporters. Presently, SFIS credit can be utilized by the recipient or its group company in India with in a period of 2 years, against custom duty payable on imports of capital goods / consumables. Through a circular Government of India has extended the benefit of SFIS to excise duty payable for procurement of capital goods / consumables as well. We suggest: - The utilization of SFIS scrip should be allowed to procure services as well. Further, such utilization may be treated as payment of Service tax and hence be eligible for CENVAT credit. - SFIS scrip should be made transferable to companies outside the group companies as well. This treatment would be in line with similar benefit available to manufacturing / trading industry in the form of DEPB. - The time limit for utilization of SFIS scrip should be increased from 2 to 5 years. - Further, the definition of the term Group Company needs to be enlarged / clarified. Currently, field level officers are not allowing the benefit in case two companies are connected through an entity registered outside India. Service tax liability on reverse charge basis: Presently, in case of import of any service which is otherwise chargeable to Service Tax, the recipient of service is liable to discharge Service Tax liability on reverse charge basis.

Further, Rule 5 of Taxation of Services (provided from outside India and received in India) Rules

2006 states that the taxable service provided from outside India and received in India shall not be treated as output services for the purpose of availing credit of duty of excise paid on any input or service tax paid on any input service under CENVAT credit. In other words, when the service is rendered from outside India and received in India then such taxable service shall be treated as if the service receiver had himself provided the service in India and therefore tax is paid by the recipient of service in India under reverse charge. The above Rule prescribes that for the payment of tax under reverse charge, service recipient cant take input credit and hence is liable to pay in cash. This anomaly is causing operational / cash flow difficulty to the industry. The above Rule should be amended to allow utilization of CENVAT credit to discharge liability under reverse charge mechanism.

Budget 2012: Media & entertainment sector seeks tax reforms


The Media & Entertainment (M&E) sector in India is currently Rs 80,250 crore and is projected to grow at a CAGR of 12 per cent to reach Rs 1,26,981 crore by 2015. The sector is one of the fastest developing in the country, driven by changing consumption patterns, an increasing number of middle-income households and the propensity of consumers to spend on leisure and entertainment. However, with a myriad of taxes in various forms and multifarious statutory compliances, members of the M&E sector are hoping for a simplification of the tax laws and resolutions of some of the long standing tax controversies that impact the sector. Some of the key issues affecting the M&E sector as a whole are the high carriage fees paid by the TV channels to DTH and MSOs and various cable operators to be placed well. As per industry estimates, the carriage cost paid by TV broadcasters in 2010-11 was Rs 1,300 crore and the same was expected to be around Rs 1600 crore for 2011-12. Currently, the broadcasters deduct tax under the section 194C at the rate of 2 per cent, treating such payments as consideration for work. However, the tax authorities have been contending that such payments are liable for tax deduction at source ('TDS') at 10 per cent under Section 194J of the IT Act on the ground that such payments are towards technical services/use of process, etc. Thus, the broadcast industry hoping for a clarification on the TDS levied on the carriage fees payments. The M&E sector is also subject to a host of other taxes and levies such as service tax, license fees, entertainment tax, State levies such as VAT, etc., apart from corporate income tax. To add to the above, there exists a disparity between taxes imposed on companies

falling under different segments in the M&E sector. For instance, a broadcasting company is subject to taxes such as service tax, VAT, etc. Whereas print companies enjoy relief from service tax and are also eligible for certain other waivers. In the case of the Rs 3,000 crore animation industry, the situation is even more grim and industry officials have been crying for the removal of service tax and to be granted a tax holiday on the lines of the IT industry so as to give the local animation industry a boost. Last year these proposals went unheard. Industry officials say they are happy doing outsourced work as they earn better export income and tax incentives and also do not have to pay huge amount by way of TDS and service tax for the work done. The animation industry is largely plagued by the lack of a full policy framework, which in turn hampers growth in the local animation industry. A new version of the sector tax framework, which brings uniformity and rationailzes the multiple levies into a unified levy would ease the burden of compliance and could also reduce current litigation on various vexed issues. While the M&E sector has tremendous growth potential, prudent fiscal legislation would help it perform at its potential. The need of the hour for this sector is appropriate tax reforms to enable the Indian M&E sector to further grow and go global.