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Budget 2017 leaves M&E sector high and dry
MUMBAI: “When my aim is right, the winds favour me and I fly,” Finance Minister Arun Jaitley said while presenting the Budget for 2017-18.
There is very little in this year’s budget that will make the media and entertainment (M&E) sector fly. In fact, it is the announcements after the budget that the sector will anxiously wait for. There is the promise to liberalise the foreign direct investment (FDI) policy further. And, of course, there is Goods and Services Tax (GST).
To be fair, the government has already relaxed most of the FDI limits on the M&E sector barring news media. It remains to be seen if the residuary areas of friction are also allowed to go. These relate to the print and TV news media and the broadcast sector cap on DTH.
There is an overall shift towards rural economy and public spending, leading to a hope that domestic consumption will prop up growth. M&E companies will stand to gain if that happens.
With demonetisation still hurting, a revival in advertising expenditure is some time away. Elections, the IPL and the ICC Champions Trophy are some of the events that will attract ad expenditure this year. The commercial pricing of Reliance Jio’s 4G services will also lead to high action in the telecom sector. But in an environment where private sector investment is tending to fall, there is need for a strong rebound in several streams of the economy.
The budget has left the M&E sector in general and the TV broadcasting sector in particular disappointed with no proposals worth mentioning.
While TV broadcasting has always been a neglected sector, this year’s budget has set a new benchmark with virtually nothing being on offer for the sector.
In the previous budget, the government had offered small relief to the sector in the form of excise duty cut for domestic set-top box (STB) manufacturers. The excise duty for indigenous STBs, routers and broadband modems was slashed to 4% (without CENVAT credit) from 12.5% (with CENVAT credit).
The overarching focus of Budget 2017 has been to revive consumption that had taken a hit due to demonetisation of Rs 1,000 and Rs 500 currency notes by investing more in rural and agrarian communities. There has also been a relief for the salaried class with tax in the income slab of 2.5–5 lakh being reduced from 10% to to 5%.
M&E companies are learning to live in a digital ecosystem. In the 2017 budget, there is an overall push towards a digital economy. The government has allocated Rs 10,000 crore for Bharat Net. Jaitley said that more than 150,000 gram panchayats will be connected to high-speed broadband via Wi-Fi hotspots by the end of 2018.
“BSNL takes pride in being an execution partner for the Bharat Net Project and will work cohesively towards its success. It will expedite the mission of a digitally connected Bharat,” BSNL MD Anupam Shrivastava said in a tweet.
Like every year, this year too broadcasters and distribution platform operators (DPOs) had submitted a laundry list to the government. The Indian Broadcasting Foundation (IBF) had demanded granting infrastructure status to the broadcasting sector on the lines of telecom sector.
It had also urged the government to reduce no need to change that to 5% from the present 10%. On the direct tax front, the IBF had urged the ministry to allow carrying forward of losses in case of amalgamation/mergers.
Another proposal presented by the IBF related to tax withholding on transponder charges. Finance Act, 2012 retrospectively included payment of transponder hire and other charges as royalty. However, these are not regarded as royalty under the DTAA definition of royalty.
Therefore, the foundation requested the finance ministry that the definition of royalty under the Indian Income Tax Act & Treaty (DTAA) be aligned so that the credit of withholding tax was available to foreign satellite service providers.
The All India Digital Cable Federation (AIDCF) also came up with its own wish list including grant of infrastructure status for the industry and removal of 8% adjusted gross revenue (AGR) applicable for multi-system operators (MSOs) offering broadband via cable.
The apex body of digital cable operators sought parity with manufacturing sector under Section 2A besides tax benefits under Section 72A of the Income-tax Act, 1961 in respect of amalgamation or demerger (carry forward and set-off of accumulated loss and unabsorbed depreciation allowances).
It also sought the inclusion of service industry, broadcasters and content production companies in the definition of industrial undertaking. It raised the issue of double taxation (service and entertainment). However, this will get resolved with the implementation of GST, which will subsume all indirect taxes.
The AIDCF had also demanded rationalisation of import duties on network equipment and allowing the use of USO funds for broadband infrastructure expansion.
However, the industry was left disappointed at the end of Jaitley’s budget speech. That has, however, not dissuaded them from commending the budget from a larger perspective of boosting the economy.
Hailing the budget proposals, IBF president Punit Goenka described the budget as a transparent instrument for prudent fiscal management.
“India is on the threshold of scripting a successful growth story. It is already the world’s fastest-growing economy. The Union Budget presented by the Finance Minister will help in consolidating the benefits of this unfolding economic regime,” Goenka said.
He was also hopeful that some of the specific proposals and concerns raised by the broadcasters in its pre-budget memorandum will be addressed soon by the FM.
The IBF also welcomed the Finance Minister’s proposal to allow carrying forward of Minimum Alternate Tax (MAT) up to a period of 15 years instead of the present 10 years.
“The Foundation was, however, extremely hopeful that the Government would consider the suggestion for granting ‘infrastructure status’ to the broadcasting industry along with permission to carry forward losses in case of amalgamation or merger as that would have made the M&E sector a more viable engine of speedy growth,” said IBF secretary general Girish Srivastava.
Viacom18 Group CEO and CII Media and Entertainment Committee chairman Sudhanshu Vats commended the government for abolishing Foreign Investment Promotion Board (FIPB) and its decision to review FDI policy to liberalise it further.
“Steps to liberalise the FDI regime, further coupled with the abolishment of FIPB and tax reforms for MSMEs, are bound to have impact in the foreseeable future,” Vats said.
He also said that the broadcasting sector will benefit from government’s strong push on digital payments.
“I am particularly enthused by the strong reforms push for digitisation and look forward to digital transactions increasing in the country. This also augurs well for digital consumption of video content. I’ve said this before and will say it again: as the M&E sector, we have a lot to gain from buoyance in the economy at the aggregate level and I believe this budget has delivered on that front,” he noted.
Concurring with Vats, Hungama.com CEO Siddhartha Roy said, “Focus on digital infrastructure in the current budget is extremely encouraging. Greater reach of broadband and data services into urban and rural India will lead to an inclusive digital economy, encouraging more people to embrace digital, driving consumption and transactions across the medium. Better quality of data is also set to give an impetus to the digital entertainment industry led by video, which is certainly poised for massive growth.”
The FM presented Union Budget 2017 amid high expectations of India Inc. The budget was based on broad themes of curbing black money, boosting individual spending, ensuring transparency and providing an impetus to agricultural and rural sector, infrastructure and digital economy.
Like the last two years, the budget this year did not bring much respite or specific announcements benefiting the M&E industry. While the expectation of overall reduction in corporate tax rate and abolition of MAT was given a miss, the proposal to reduce corporate tax rate for MSMEs to 25% (having turnover up to Rs 50 cr.) and increasing the MAT credit entitlement (from 10 to 15 years) is a welcome move and will benefit medium-scale service companies in the M&E sector.
While pointing out that there are no specific proposals in the budget for the M&E sector, KPMG India partner (tax) Naveen Aggarwal said that the proposal to reduce corporate tax rate for MSMEs having turnover up to Rs 50 crore to 25% and increasing the MAT credit entitlement from 10 to 15 years will help scale service companies in the M&E sector.
He also said that the government’s FDI liberalisation policy will be keenly watched by the sector. “While the announcement to abolish FIPB in light of successful e-governance was surprising, further liberalisation in FDI policy will be keenly watched in the context of M&E industry. Lastly, the FM provided much-needed assurance on the rollout of GST as per schedule, confirming GST council finalising the majority of its recommendations,” Aggarwal stated.
Giving his thoughts, Times Network MD and CEO MK Anand said, “After the recent massive policy implementation of demonetisation, my expectation was of some radical reforms. I was a bit disappointed on that count. However, enhanced provision for MNREGA and allocations for rural, agriculture and allied sector and a clear push for the affordable housing sector are the silver linings. Agriculture and real estate are the most important employment-generating sectors in India. This should improve the rural situation, which is still recovering from demonetisation. Hopefully that will have a ripple effect on spending and the larger economy.”
Mukta Arts MD Rahul Puri said that the proposal to set up cyber security teams will help fight piracy. Similarly, the government’s push towards internet penetration in rural markets will help increase content consumption and the audience base. “Further, the abolishment of FIPB will make it easier for foreign investors to invest in Indian companies,” he said.
KSS Group CEO & KSS Digital Cinema CEO Rahul Kanani said, “Union Budget 2017 introduces the abolition of the FIPB which is a positive step leading to inducing more foreign studios investment in India. More investments, coupled with technological upgrades, will certainly be a boon for the Indian film industry. Further, with digital transactions getting a boost, the industry especially single-screen businesses, which have suffered hugely because of recent demonetisation, will help get a push.”