The Hindu Business Line : A taxing scenario for media

THE cost of producing your favourite show on television or radio may just go up, as entertainment software production companies will now have to pay a 10 per cent service tax.

So far television and radio content production companies were not under the service tax net. According to industry officials,

"Earlier video production services were under the service tax net, but a few months ago the Revenue Department clarified that this did not include content production companies. The government has plugged this loophole."

Said Mr Ronnie Screwvala, Chairman, UTV, "While production houses would now be under the service tax net, for the broadcaster, this would be tax neutral as it will be modvatable.

The broadcaster charges a service tax from the advertising agency, who in turn recovers the tax from the advertiser." However, industry analysts said that the broadcaster may not take the full burden of the service tax and the production company would be impacted.

However, software production companies such as Balaji Telefilms are still grappling with the new levy. "We have to look at the fine print before we can assess the damages," said Mr Rajesh Pavithran, Chief Operating Officer of the company.

Meanwhile, Mr Prashant Panday, COO of Radio Mirchi, said at present, the radio industry produces its content in-house. "But once we start outsourcing production, we will also be hit."

The Finance Minister, Mr P. Chidambaram, has also extended the service tax net to multi-system operators (MSOs) and cable operators.

According to Mr Jawahar Goel, Head of Siticable, the service tax should be modvatable as the cable operators are collecting service tax from the customer. At present, MSOs who are also last-mile operators already pay a service tax.

The cable industry, on its part, has said that there is no levy either in the form of tax or licence fee on broadcasters. "Broadcasters repatriate money abroad which is neither being taxed nor are they paying any licence fee. Only the cable industry is being subject to regulations," said the Cable Operators' Federation of India.

The music industry has also welcomed the exemption of copyright services from the service tax net. Mr V.J Lazarus, President, Indian Music Industry, said, "The status quo on exemption of excise on pre-recorded music cassettes and CDs will provide a boost to the industry and the exemption of service tax on copyright services on intellectual property is also a welcome move."

Apart from the new indirect tax levies on the broadcasting sector, Budget 2004 has decided to exempt newsprint in reels from excise duty. This is likely to bring down the cost of newsprint, benefiting publishing houses.