“The year 2012 marks the beginning of the centenary year of Indian cinema. From Dada Saheb Phalke’s Raja Harishchandra to Ra.One, the industry has played a pivotal role in unifying our country in the wake of her considerable diversity,” said Finance Minister Pranab Mukherjee, in his Budget speech, on Friday.
To add to the spirit, the minister has exempted the industry from service tax on copyrights relating to recording of cinematographic films. Earlier, film-makers and production houses were subjected to 10 per cent service tax on copyright.
“The service tax exemption on the entertainment industry is a very encouraging step. This move can also be viewed as a way to offer some respite to the previously challenging situation the industry is facing, due to heavy taxation,” said Ashish Hemrajani, founder and chief executive officer (CEO), Bigtree Entertainment.
Echoing a similar sentiment, Hiren Gada, director, Shemaroo Entertainment, said, “The service tax exemption is a very positive move. It was a big burden on the industry and had a lot of administrative challenges as well.”
On the other hand, the Budget has also permitted venture capital (VC) investment to flow into the media and entertainment (M&E) industry, which was not available earlier. Further, the inclusion of entertainment and amusement in a negative list of services for service tax would also be a big boost for live events and shows.
“Opening up of the venture capital investment route would indeed help, as investments in the M&E industry will become more attractive. Also, exemption from copyright-related matters is a very positive move but the announcement on taxation of admission to entertainment and amusement under the negative list provisions will require review of fine print to examine the impact from an overall supply chain perspective,” said Rakesh Jariwala, partner and tax expert, M&E, Ernst & Young.
The biggest challenges for the M&E industry are myriad taxes and multifarious statutory compliances, which have not been addressed in the Budget. The members of the M&E industry were hoping for simplification of tax laws and resolution of some of the long-standing tax controversies that impact the sector.
Huge levy of entertainment tax (in excess of 30 per cent) on film exhibition, uncertainty surrounding TDS on several payments and higher withholding tax at 20 per cent in the absence of PAN, taxation of Foreign Telecasting Companies (FTCs), value-added tax (VAT) and levy of service tax on DTH industry have been haunting the industry for long.
“This Budget is a mixed bag. The advent of GST is likely to allay some of the major concerns of the exhibition industry, though there is no mention about the date of its implementation. With service and entertainment tax, the industry would witness challenging times,” said Sunil Punjabi, CEO, Cinemax.
