Entertainment: More Gham Less Khushi!

Service tax imposed on cable and excise duty imposed on tapes

Budget Provisions
Finance Minister Yeshwant Sinha agrees that the Indian entertainment sector needs to be boosted in the coming years. In his budget speech, he said, "India's global leadership in computer software must now be complemented by another area of our core competence, the vast terrain of the entertainment industry. Today, we are the world's largest producer of films; we have a rapidly expanding broadcasting sector; a huge reservoir of talent in music; and a promising potential to become the international hub for all types of inputs for the entertainment industry. Accordingly, the budgetary support for the Ministry of Information and Broadcasting is being increased by 22% to Rs 415 crore for 2002-03."

He also mentioned that it is time to bring about a fiscal regime to usher in more "Khushi" and take away the remaining "Gham" from the entertainment industry.

Notably, the film and entertainment industry has targeted a turnover of over Rs 30,000 crore by 2005. The over Rs 12,000 crore-entertainment industry encompasses films, television, cable, music, multiplex theatres and event management companies. The industry had demanded parity with information technology and hotel industries to reach the targeted turnover.

On the equipment side, customs duty on certain earth station and studio equipment has been reduced in this Budget. As Sinha said, "India has the technical capability to become an uplinking hub for television channels for the SAARC countries. In order to promote state-of-the-art uplinking facilities at competitive costs, I propose to reduce customs duty on certain earth station equipment and studio equipment from 35% to 25%."

To give a further boost to the fast-growing film segment, the Budget has a provision to allow, for the next five years, a deduction of 50% of the profits earned by units constructing and operating multiplex theatres in non-metropolitan towns.

In the Budget 2002-03, the Finance Minister also brought the 'event management' and cable operators under the service tax net. This comes as a surprise as the entertainment industry was expecting benefits in the form of exemption of service tax from the finance minister.

In fact, the Broadcasting companies wanted the removal of the 5% service tax levied on the industry during the last year. This Budget also brings amendments in the definitions relating to Broadcasting service with retrospective effect from 16 July 2001 to clarify the scope of the levy and recovery of duty accordingly.

A big dampner for the music segment of this industry is the ad valorem tax of 4% on recorded audio cassettes.

Reactions

As one of the Analysts with a leading brokerage house said, "The fact that the Entertainment sector is being viewed as a core competence of India and the desire to replicate the successes of software in this industry as well is a welcome move. However, increasing the service tax net to cable operators can be a dampner."

Another Analyst commented, "Entertainment sector is the only sector, which gets something concrete in this budget. However, there are certain issues like the utilisation of the budgetary support promised by the finance minister, which need further clarification. Overall, it's not a very entertaining budget for other sectors, but a encouraging one for the entertainment sector itself."

Industry Impact

Broadcasting companies wanted the removal of the 5% service tax levied on the industry. However, the finance minister has not listened to that and as a result, this segment will continue to attract the 5% tax. So, this is not good news for the segment.

On the other hand, reducing the customs duty on uplinking equipment will benefit this segment. More so, this will help all those players who have yet to shift their uplinking operations to India.

The multiplex operators in the non-metro towns will benefit as they get sops on the income tax front. This will also help the multiplex operators in the metros as well as they also get better bargaining powers by this provision.

Perhaps, the most severe impact will be on the music companies. As the 4% ad valorem duty is imposed on the recorded music segment, it would hurt all the players in this segment. With the piracy levels already high, the increase in the prices of recorded audio cassettes will not be a welcome sign.

Company Impact

Adlabs: A clear winner due to provision on multiplexes. Zee Telefilms may see a negative impact as Siticable, its cable operating subsidiary will need to pay service taxes. On the other hand, companies like Sahara India and Sri Adhikari Brothers (SABTNL) will gain as they plan to shift their uplinking facilities to India.

In the music segment, companies like Saregama and Tips will suffer heavily as the prices of the audio cassettes can move up leading to pressure on volumes and in turn, the margins.

The imposition of service tax on the event management companies means companies like Pritish Nandy Communications, etc. will have to pay the taxes. However, these companies can easily transfer the additional burden on to the customer and hence, the overall effect will be much lower.

Companies to watch

Adlabs, Zee Telefilms

Amongst the content players, Balaji Telefilms, Mukta Arts

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