The Indian media and entertainment (M&E) sector has some reason to cheer from this year's Union Budget for 2012-13 as it was given some attention. For starters, with the opening up of the venture capital sector, the investments in the M&E sector will become attractive. Currently, VCs are allowed to invest only in nine specified sectors.
Secondly, the finance minister cheering the centenary year of the Indian film industry has put forth a proposal to exempt the industry from service tax on copyright on cinematographic films. With this move the exhibitors would be exempted from levy of service tax on payments made by them to distributors for exploitation of cinematographic rights.
FULL COVERAGE: UNION BUDGET 2012
Jehil Thakkar, Head of Media and Entertainment, KPMG says: "This is good for the industry as they have been pushing for this for a long time. This move of exempting service tax on copyright on cinematographic films will only improve the overall cash flows and improve finances of the film sector."
However, Atul Goel, Managing Director, E City Ventures, while applauding the move to exempt the service tax said, "This is a good move as we have been burdened with multiple taxes. But, we would like the entertainment tax to fully subsumed in GST, to result in seamless pass-through of such indirect taxes."
According to Rakesh Jariwala, Partner and Tax Expert, Media & Entertainment, Ernst & Young, "Opening up of venture capital investment route, which was earlier not available to investments in the media and entertainment industry, will indeed help as the investments in the M&E industry will become more attractive. Also, exemption to the film industry from copyright related matters is a very positive move, though announcement on taxation of admission to entertainment and amusement under the negative list provisions will require review in the fine print to examine impact from an overall supply chain perspective."
The Rs 9,290 crore film sector in India produces around 1,000 films a year in about 20 languages. India is not only the largest film producers but also the largest film watchers in the world with annual admissions exceeding 3 billion tickets. However, the Hindi film industry has not been able to establish a common marketplace for itself because of the burden of huge entertainment tax levied by the various states.