| 23 Feb 2024
FICCI suggest five-year tax holiday to encourage new investment in FM Radio Phase III

New Delhi: The broadcast, cable and direct-to-home sector should be treated as an infrastructure industry and get all the benefits and incentives available for the infrastructure industry including the availability of finance at a concessional rate.

Making this demand, the Entertainment Wing of FICCI has said in a pre-budget memorandum to Finance Minister Arun Jaitley that the sector should be allowed tax concessions as per Section 80-IA of the Income Tax Act.

Parity with Manufacturing Industry under Section 72A of the Act

It also said that the disparity between the service and the manufacturing sector is very adversely affecting the growth and consolidation of the service sector.

The tax benefits under Section 72A of the Act in respect of amalgamation or demerger (carry forward and set off of accumulated loss and unabsorbed depreciation allowances) are currently limited to industrial undertakings or a ship, hotel, aircraft or banking. The definition of industrial undertaking should be widened to include service industry, broadcasters and content production companies.

Tax Exemptions for Radio Broadcasting

While noting that radio is anticipated to see a spurt in growth after the rollout of FM Phase III licensing, FICCI asked the Government to consider providing tax holiday of 5 years for new capital investment in Phase III; reduce customs duty on capital equipment for radio broadcasting to 4 per cent; and consider Service tax exemption for billings to service recipients covered in the negative list.

Rationalization of Indirect taxes

The rate of taxes which range from 30 per cent to 70 per cent, especially the entertainment tax imposed by the states, over and above the service tax, are punitive in nature, FICCI said, adding that such punitive level of taxation incentivizes unhealthy practices, such as piracy, revenue leakage on account of under reporting of revenues, etc. It is important that the overall taxation level is brought down for the sector as a whole.

State Entertainment tax legislations levy high taxes on the subscription earned by cable operators and DTH Operators. The non-availability of credit of central taxes against the state taxes and vice versa increases the tax burden on the entertainment industry. In addition to this, the Central Government has levied service tax at 14 per cent on the transfer of copyrights which is already being taxed as ‘goods’ under the various state VAT legislations.

Payment for Content Production

FICCI said there is ambiguity since the tax authorities have been adopting a view that the payment towards production of content is in the nature of fees for technical services and subject to tax at the rate of 10 per cent under section 194J of the Act whereas Explanation III to section 194C of the Act clarifies that payments made towards a contract, concerning broadcasting and telecasting including production of programmes for such broadcasting or telecasting, would fall under the definition of ‘work’ for the purpose of section 194C of the Act.

It suggested that to avoid difference in positions adopted by the tax payer and tax department on applicability of relevant section and to mitigate resultant litigation and hardship, a clarification may be issued regarding appropriate classification of content production services and applicability of relevant section for withholding of taxes.

Deduction of tax at source under Section 194H on the “15 per cent agency commission”

FICCI recommended a clarification/ instruction, that no taxes need to be deducted at source by the Broadcasters on the “15 per cent agency commission” as mentioned in the invoice raised by Broadcasters to Advertisement agency/ Advertisers, should be issued.

FICCI said the “15 per cent Agency commission” mentioned by Broadcasters in its invoices for ad airtime sale raised on Advertisement Agency/Advertisers is merely a presentation in the invoices and not a real transaction. Neither the Broadcasters nor Advertisement agency recognizes the same as revenue/expense. It is customary in nature, as is also evident from the fact that even on the invoices raised directly on advertisers; the said “15 per cent agency commission” is appearing.

Broadcasters are not supposed to make any payments towards “15 per cent agency commission” mentioned in the invoice, as there is no agreement or arrangement to pay such 15 per cent agency commission with Advertisement agency/Advertisers. In fact, Broadcasters do not make any payment to Advertisement agency/Advertisers in respect of the said “15 per cent agency commission” mentioned on the invoices.

Noting that advertising is one of the main sources of income of broadcasters, FICCI said.

Explaining the process, it said advertisers appoints Advertisement agency for providing various services in respect to any ad campaign including procurement of air time from broadcasters to telecast the advertisements on the television channel.

Transaction between Advertisement agency and Broadcasters is on principal to principal basis. After entering into a contract with Broadcasters, Advertisement agency releases order confirming the advertisement airtime purchase. Broadcasters telecast the advertisement as per the instruction of Advertisement agency and raise invoice for sale of ad airtime.

Broadcasters mention “15 per cent agency commission” on the invoice raised by it, which is an age old industry and customary practice. Advertisement agency makes the payment to Broadcasters of the invoice raised, after deducting appropriate taxes on net amount of invoice (that is, after reducing the 15 per cent agency commission).

The Advertisement agency in turn raises the invoice on advertisers for recovering the cost of airtime plus their own service charges. Advertisers make payment to Advertisement agency after deduction of appropriate taxes on the entire invoice raised by Advertisement agency including on cost of airtime. The two transaction namely between Broadcasters and Advertisement agency and Advertisement agency and Advertisers are separate and distinct.

Service Tax exemption on entry to Award Functions, Musical Performance etc.

The Union Budget of 2015 had amended the negative list of services and effectively withdrawn the unconditional service tax exemption which was granted to tickets for award functions, music events, sports events etc. With effect from June 2015, service tax is payable when the consideration for admission to entertainment events such as award function, concert, pageant, sporting event etc. is more than Rs. 500 per person.

But FICCI said payment for admission to any event is already liable to a high state entertainment tax and levying of a service tax of 14 per cent over and above the high rates of entertainment imposes a high burden on the entertainment sector.

It wanted a clarification to be issued to specify that the value of ticket for the purpose of levy of service tax on such admission (where the ticket price is more than Rs. 500) should be the value excluding Entertainment tax. It should also be clarified that if service tax is payable, the same should be computed on a value exclusive of Entertainment tax and accordingly no service tax should apply on entertainment tax amount.

At the outset, FICCI said the Indian media and entertainment industry grew from Rs 918 billion (Rs 91,800 crore) in 2013 to Rs 1026 billion (Rs 1,02,600 crore) in 2014, registering an overall growth of 11.7 percent. The industry is estimated to achieve a growth rate of 13 percent in 2015 to touch Rs 1159 billion (Rs 1,15,900 crore). The sector is projected to grow at a healthy CAGR of 13.9 percent to reach Rs 1964 billion (Rs 1,96,400 crore) by 2019.