Authored by Himanshu Parekh, Partner, Tax, KPMG in India
Several businesses globally have been facing challenging times since the onset of Covid-19 pandemic and the Indian Media & Entertainment (M&E) sector is no exception. While OTTs had a stellar year, movie theatres were shut down for most part of the year or could operate only with limited capacity. The advertising industry also faced significant challenges given the tightening of purse strings by advertisers. The TV industry did witness some hiccups but showed good resilience and has navigated its way back to recovery.
As the Hon’ble Finance Minister will cross the short distance from North Block to the Parliament to present the Union Budget in the backdrop of the raging third wave, the M&E sector is firmly hoping for a progressive Budget with structural reforms, providing impetus to growth. One of the major expectations of the M&E sector revolves around Equalisation Levy (EL). The way the EL provisions are drafted, there are several interpretational issues and ambiguities surrounding them. It is worthwhile to note that the future of EL in India depends on the adoption of the OECD Pillar One and Pillar Two proposals, which are all set to overhaul the global tax norms in a couple of years. Till the time the new proposals are implemented, paving the way for withdrawal of the EL provisions, it would do well for the Government to demystify the controversial issues under the current EL provisions.
Currently, consideration for sale, distribution or exhibition of cinematographic films is liable to withholding tax @ 2%. However, payments towards non-theatrical rights is be subject to withholding tax @ 10%. It would be helpful if the Finance Minister reduces the rate of TDS on domestic payment towards non-theatrical rights to 2%, to bring it on par with the rate in respect of theatrical rights. The advertising industry has also been clamouring for reduction in rate of TDS, given the significant cash blockage that they face every year.
Another major pain point of the taxpayers is vis-à-vis matching of TDS credit with the corresponding income in the tax return. The taxpayers are allowed to claim credit of TDS only if the corresponding income is offered to tax in that year. For a variety of reasons, there can be timing differences between the year in which tax is deducted by the deductor and the corresponding income is offered to tax by the deductee. It puts an onerous burden on taxpayers to reconcile the TDS with the corresponding income and the year in which it is offered to tax, especially where the volume of transactions is humungous. The tax law may be suitably amended to provide that, so long as the income is offered to tax in any of the years, credit for the TDS reflected in Form 26AS be allowed to the taxpayer in the year of deduction of tax.
In case of amalgamation of companies, losses of the amalgamating company are allowed to be transferred to the amalgamated company only for a certain class of companies. One of the long-standing demands of the M&E sector is that the provisions should be amended to allow benefit of carry forward of losses to the companies in M&E sector as well.
On GST front, allowing input tax credit on certain expenses relating to production of content and on payment of advance for acquisition of rights, would go a long way to improve the working capital position.
Last year, the Finance Minister unraveled a bold and ambitious Budget by giving a boost to a huge spending plan, providing some respite to the Indian economy from a pandemic-induced slump. As the uncertainties around Covid continue this year as well, all eyes are now back on the Finance Minister as to what extent can she keep the spending tap open. As theatres try to lure movie watchers back to the cinemas and the TV set struggles to coexist with OTT, Union Budget of 2022-23 is expected to play a pivotal role on how the M&E sector of India shapes up. All in all, we hope that Budget 2022 gives a much-needed ‘booster dose’ to the M&E sector to put it back on the growth trajectory.
A version of this article appeared in CNBC TV18 Online on 18 January 2022