New UP tax to hit DTH services

Some of the operators plan to move court.

The 220-odd distributors of direct-to-home (DTH) services of the five DTH operators in Uttar Pradesh have threatened to freeze sales.

This is after the state government imposed a 30 per cent entertainment tax on both the hardware (set top box) as well as the broadcasting services (the channel packages), the highest across the country, and with retrospective effect.

Last month, the state legislature amended the UP Entertainment and Betting Tax Act, 1979, to bring DTH into the tax net. It has also made it clear that distributors apart from the DTH operators will be pulled up if there is any case of non-payment of the tax.

Existing subscribers will have to pay substantially more if they want to continue to get DTH services. Currently there are over one million DTH subscribers in the state, one of the fastest growth in numbers of net additional subscribers in the country — 20 per cent, compared to 15 per cent all-India. Some of the operators are planning to go to court against the decision.

For the consumers in UP, the tax means an additional outgo of Rs 60 a month upon every renewal or purchase of a monthly subscription worth Rs 200. That apart, new customers have to pay about Rs 550 to Rs 600 extra on the software, whose prices range from Rs 1700 to Rs 2,000. Distributors of DTH boxes say they do not make enough margins to absorb the tax.

Says Jawahar Goel, managing director of Dish TV, the country’s largest DTH operator: “We will have no choice but to redeploy our set top boxes and our workforce to other states and get out of UP. After all, the state does not constitute more than 5 per cent of our business. Eventually the state will lose.”

DTH operators fear this move, once implemented, may encourage other states to increase the entertainment tax to 30 per cent. So far, the operators have built in all the tax elements in the end-subscription packages and nothing was charged over and above these.

Currently, different states charge different rates for the entertainment tax. These are absorbed by the operators to keep the cost of DTH connections and monthly subscriptions low. According to industry sources, even Uttarakhand is looking to impose an entertainment tax of 30 per cent on DTH connections and subscriptions. In Mumbai, it is Rs 45 per connection per month while it is Rs 15 per DTH subscriber per month in Bihar. In Gujarat, the entertainment tax rate is Rs 200 per year for each subscriber, while in Rajasthan it is 10 per cent of the overall yearly revenue of the DTH operator.

“We are disturbed by this news. For all practical purposes, if we choose to pay the 30 per cent entertainment tax to the UP government, the earnings of DTH operators will be in the negative,” said a senior executive in the DTH Operators Association of India, the apex body representing all the private DTH operators like Dish TV, Tata Sky, Digital TV, Sun Direct and Big TV.