FICCI-KPMG-Report-13-FRAMES

13
The power of a billion: Realizing the Indian dream
The Indian Finance Minister presented the Finance Bill 2013 on 28 February
2013. There are a few proposals in the Budget which are relevant for the
M&E sector from a taxation angle. On the indirect tax front, the Finance
Minister accepted the request of the film industry and the exemption from
service tax in respect of copyright in cinematographic films granted last year
has been withdrawn. However, the exemption continues in respect of films
for exhibition in theatres. Another proposal impacting the distributors of TV
channels is increase in customs duty on set top boxes from 5 percent to 10
percent.
On the direct tax front, while the headline corporate tax rate has remained
unchanged, the rate of surcharge, if taxable income exceeds INR 10 crores,
has been enhanced from 5 percent to 10 percent in case of domestic
companies and from 2 percent to 5 percent in case of foreign companies.
Further, the domestic withholding tax rate in case of payment of royalty
and fees for technical services to non-residents has been increased from
10 percent to 25 percent. This could have significant impact in relation to
payments made for acquisition of content, transponder hire charges, etc.
in cases where the tax treaty benefit is not available. The Government also
deferred implementation of the General Anti-Avoidance Rules (GAAR) by two
years to FY 2015-16, providing a much needed respite to tax payers.
The announcement of the roll out of Phase III of radio licensing is a welcome
move that will be a catalyst for growth of the radio industry. The industry has
been awaiting this for a while and the new stations will enable radio to be a
much more viable medium for advertisers looking for a broader reach.
In a welcome move on the regulatory front,the Government, through issue
of Press Note 7, has raised Foreign Direct Investment (FDI) limits / liberalized
the FDI norms for investment in the broadcast carriage services industry
such as Direct-To-Home (DTH), cable TV and also clarified the foreign
investment policy in Mobile TV.
The Government has also cleared the Copyright (Amendment) Bill, 2010,
which expands the definition of ‘copyright’ and introduces a system for
statutory licensing to protect owners of literary or musical works. The
amendments now enable artists to claim lifelong royalty for their works. The
Government has also taken several measures to ensure ‘digitization’ of cable
television.
Industry participants anticipate that several tax issues discussed below are
likely to be resolved by the Government in the near future.
187
Film industry
• Key tax issues
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Deduction of expenses
The Income-tax Rules, 1962 (Rule 9A and 9B) permit deduction of
expenditure incurred on production of films / acquisition of distribution
rights therein either in the first year of release or over a period of two
years, based on when the copyrights / distribution rights in the films
are exploited or the date of release of the film.
There are several ambiguities surrounding the applicability of Rule 9A
/ 9B including whether it extends to satellite, music, home video and
other rights in addition to theatrical rights, whether it is directory or
mandatory, whether it overrides all other provisions of the Income-tax
Act, 1961 (IT Act), (for example whether the deduction of expenditure
under Rule 9A / 9B is allowable irrespective of whether it is capital or
revenue in nature, whether tax has been deducted at source or not),
deductibility of expenses which are not covered by Rule 9A / 9B, etc.
A Government circular or clarification on the above aspects would help
dispel this uncertainty.
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