A cross-section of the industry reacts to Nirmala Sitharaman’s maiden Budget
Girish Menon, Partner and Head, Media and Entertainment, KPMG in India
Although there was no direct reference to the media and entertainment sector in Budget 2020, the focus on improving India’s digital connectivity bodes well for the sector. The Honourable Finance Minister’s announcement that an amount of INR 6,000 crores will be spent on BharatNet initiatives will see more citizens connected to the proposed pan-India FTTH network. Media and entertainment is increasingly becoming a digital medium and an enhancement of the underlying digital communications infrastructure will support more immersive experiences. Finally, the focus on building a vibrant start-up ecosystem with measures to improve access to funding and IP protection will help India emerge as a global hub for technological innovation.
Rakesh Jariwala, Partner – International Tax Services, EY India
Removal of exemption on sale, distribution and exhibition of cinematograph film will subject theatrical revenues to domestic withholding tax considerations and could pose working capital considerations for already funding constrained film industry. Amendment of source taxation rule to include advertising income relating to customer based in India while global consensus is being formed on digital taxation rules may result in short term pain for the foreign businesses which do not have access to a tax treaty. Reduction of withholding tax rate on technical services to 2% will provide relief on potential rate related disputes on production services. Reduction in import duty of news print should help the ailing print businesses.
Ashish Bhasin, CEO, APAC and Chairman, India – Dentsu Aegis Network:
I think this is a good budget in some ways because it has attempted to put money in the hands of the middle class through rationalisation of tax rates as well as has concentrated on looking after the agricultural sector, including introduction of best practises like storage for producers and other measures. However, I do feel that the expectations from the budget were much more and it does feel like a bit of a missed opportunity.
While it is good to see that the dividend distribution tax has been abolished, I expected more on the rationalisation of direct taxes, particularly the cess introduced over and above the tax rates.
It is good to see efforts being made to encourage new-age skill development as well as helping the start-ups and what’s particularly interesting is the proposal to set up data centre farms all over the country. This will prepare India for the economy of tomorrow. It is also good to see attempts at simplification of taxation through digitisation but the proof of the pudding will lie in seeing its implementation on ground.
It would be fair to say that at best it is a mixed budget and while there are some encouraging decisions, enough does not seem to have been done for the situation the economy is in.
Karan Darda, Executive Director, Lokmat Media Group:
We welcome the proposed reduction in custom duty on import of newsprint and light-weight coated paper. In recent years, newspaper industry has been facing many headwinds and the environment has overall been very challenging. 10% customs duty was introduced last year and that added to the burden. The reduction in customs duty would ease the burden and help the industry in this critical juncture.
Anand Bhadkamkar, CEO, Dentsu Aegis Network (DAN) India:
The budget has provided relief to middle class with lower tax rates which is a welcome move, as it will provide more liquidity. On direct taxes, the abolition of DDT and introduction of a tax dispute resolution scheme is a welcome step alongside tax reliefs for startups.
The budget is focusing on easing and simplification of compliance, with changes in corporate laws as well as in GST and direct taxes. However, I was expecting further simplification of cess and surcharges beyond tax rates across slabs.
The proposals for development of road infrastructure, setting up data centre parks and skill development initiatives are welcome steps in addition to allocations for social welfare schemes.
However, the expectations from the budget were high on the background of current economic slowdown, and as such seems to be short on matching those expectations, with no specific industry sector focused sops to provide stimulus. While the budget shows focus on long term growth and social development, overall in the current scenario it looks like a mixed budget, falling a bit short of market expectations of more corrective measures.
Gautam Sinha, CEO – Times Internet:
Budget 2020 is a promising step towards establishing India’s future as an enduring digital economy. The increased focus on improving data connectivity under Bharat Net, steps to boost the smartphone manufacturing industry and the Rs 8,000Cr allocation for the National Mission on Quantum Computing & Technology will help build better digital infrastructure to support this sector’s rapid growth. Finally, deferring tax on ESOPs for startups is also a major move that will help promising startups attract and retain talent that would fuel our burgeoning digital ecosystem.
Redickaa Subrammanian, Co-founder and CEO, Resulticks:
Digital disruption has transformed India’s business landscape and the announcement for building more data centre parks will further aid in laying a strong foundation for a digitally connected country. INR 8000 crore allotment for developing quantum technology is impressive, and this in tandem with the grassroots level skilling initiatives, make for a strong technology ecosystem. Engineering students will also gain real-world experience through the new internship programs, creating a digitally skilled talent pool equipped to work in a digital economy.
As a fast-growing AI and ML based technology start-up, we welcome setting up of the investment clearance cell. The proposed revisions in the income tax structure should lead to increased consumer demand and provide an overall impetus for economic growth in India. The announcement made in Budget 2020 showcases the government’s support for India’s technological advancement and we are excited about the entrepreneurial spirit it promotes.”
Prashan Agarwal, CEO – Gaana:
We appreciate the efforts of the government to boost the digital ecosystem in the country. The increased focus on improving connectivity under the Bharat Net scheme and the emphasis on Artificial Intelligence will allow OTT players to offer bespoke and personalised solutions to consumers. Additionally, the impetus to the smartphone manufacturing industry will make internet consumption accessible to a wider section of Indian society that will expand the scope of revenues for OTT players. The allocation of Rs 8000 crore for setting up the National Mission on Quantum Computing and Technology will also boost the development of the industry by making resources cost-effective.
Mitesh Shah, Head of Finance, BookMyShow:
At the onset, we would like to laud Government for growth driven budget. We welcome the progressive policies aimed at encouraging rural demand, changes in personal taxes spurring consumption and impetus to infrastructure development, measures aimed at bolstering growth and reverse slowdown. Additionally, taxation related on ESOPs as perquisite and removal of DDT are significant moves. However, the benefits of taxation relief on ESOP should be expanded to companies at various stage of growth.
Compliance on e-commerce has been increased by mandating them to deduct TDS @1% on all goods and services sold on e-commerce platforms. This would be in addition to TCS under GST and this amendment might further increase the cost of compliance for e-Commerce companies. Government’s vision to build data centre parks, allocation towards quantum computing and its focus on using artificial intelligence in statistical and other government departments will take India’s growth story to the next level.
Increase in compliance on e-commerce by mandating deduction of TDS @1% on all goods and services sold on e-commerce platforms. This would be in addition to TCS under GST and this amendment might further increase the cost of compliance for E-Commerce companies. Government’s vision and focus on investing in new age technologies to build data centre parks, allocation towards quantum computing and its focus on using artificial intelligence in statistical and other government departments will certainly give an impetus to ‘Digital India’.
Kunal Bahl, CEO & Co-founder, Snapdeal:
Thankful to the Hon’ble FM for accepting the start-up sector’s request for ESOP taxation reforms. Also, the higher time & turnover limits for carry forward of losses for start-ups will enable them to optimize growth decisions in formative years.
Overall, Budget 2020 is a thoughtful weaving together of specific proposals to tackle varied issues. Measures to improve access to finance for MSMEs and reduced taxation for the middle-income segment are welcome steps. Boosting physical infrastructure, expanding digital connectivity and growing use of technology in government functioning are important building blocks for the long-term growth of the Indian economy.
“As part of the budget proposals, India has levied an equalisation levy – what is known as ‘google tax’ globally. The tax @ 6% of the consideration will apply on services relating to online advertisement, provisions on online ad space or other facility or services for the purpose of online advertisement, when such services are provided by a non-resident to either an Indian resident or a non-resident having a permanent establishment in India. The payer for these services are required to deduct 6% prior to making the payment. This is the first time that online services are being taxed in India.â€
“Kudos to the government for presenting a disciplined and inclusive budget. The emphasis on rural development and commitment to the fiscal deficit target augur well for the economy in the long-run. The proposal for a more conducive excise duty regime for STBs and other ‘entertainment-access devices’ is welcome. While many of us from the industry were anticipating more sector-specific announcements, I’m sure that this budget will benefit the larger economy and therefore, by extension, have a positive impact on our industry as well.â€
“Overall there are some positives and some negatives in the Budget. On the positive side, not increasing the service tax is a positive, particularly for the advertising and media sector. General expectation was that Service Tax may go up in anticipation of higher GST rates. Controlling the fiscal deficit and several steps to invigorate the rural economy and rural consumption are positive signals. A rural consumption revival will help the economy and the advertising and media sector tremendously. On the negative side, there was an expectation, based on what the Finance Minister said in the past, that corporate tax rates would come down. That is not to be so for most large companies. Introducing double taxation on dividends is also a negative.  In balance this seems to me to be a mixed bag budget with a positive bias. If it is able to spur overall economic growth, we could see good times ahead for the advertising and media sector.â€
“Digitisation, in my opinion is the most important factor for the Broadcast sector currently, we are very happy about the excise duty changes proposed for Set Top boxes which will help in the last mile infrastructure of DAS 3 and 4. Overall a stable and positive fiscal situation is good for the economy and that will support our Ad Sales growth projections. All in all Budget 2016 looks good for the Broadcast sector.
“Overall, this is a responsible “Rural First†Budget that attempts to revive demand, while continuing on the path of fiscal consolidation. For the FMCG sector, initiatives to support the revival of rural and urban consumption should help bring growth back on track. Focused efforts on alleviating rural distress and uplifting the agrarian economy, will help put more money in the hands of farmers. Statutory backing of the Aadhar scheme will ensure more targeted delivery of benefits to those who need it. The need of the hour is job creation and focusing on skilling and education to make people more employable. The implementation of transformative reforms, like the GST, at the earliest, are however imperative to fast track economic growth and boost consumer confidence. Given the Government’s intent to stick to its path of fiscal consolidation, we look forward to an interest rate cut or more liquidity in the system to drive private capital investment. Going forward, given the plethora of schemes that have been announced, it will be important to deliver on the promises made through effective on-the-ground execution.
“We are glad that there is no increase in taxes. Since the government is said to be pro-development and has allotted significant money for the rural infrastructure, railways and road development, we think it’s a positive sign for our future. We are also seeing great potential in expanding our reach to small cities now. The finance minister has also hinted at amending motor vehicles act for better transportation facility in the country. This may give us the opportunity to position our ads more effectively while on the move. We feel that in this critical economic condition, the budget has been so far satisfactory for the advertising industry.
The M&E sector has been subject to immense litigation on various direct and indirect tax controversies which extend to transfer pricing, withholding taxes, characterisation issues, etc.  This Budget has introduced measures which could reduce the litigation both past and in respect of proposed transactions.  These measures include roll back of Advance Pricing Agreements to preceding four years, extension of advance ruling mechanism to resident for income tax matters and  resident private companies for service tax matters, simplification of transfer pricing rules, measures to make settlement commission authority more effective for income tax litigation, etc.
Fundamental need of the hour is to boost the economy, which is essential for growth of M&E. The following steps are expected for sustained economic growth:
It is important for the government to create policies that stimulate taxes and widen the tax base, not necessarily by lowering the taxes. It is important that in current economic situation, to raise consumer sentiment. We have been hearing of uniform GST, which has not been undertaken yet. Also, it is important to lower interest rates.
For the broadcasting industries of radio and television we look forward to clarity, uniformity and relief from taxes. Advertisement in free to air mediums like radio should be treated differently and lower or nil service tax should apply for the same, aligning with the print and out of home industries. Also, FDI in non-news radio operations needs to be brought at par with television broadcasting. Customs duty on radio and television broadcast equipment should also be relaxed.
On the direct tax front, we could look at the following key areas:
The burden on the growing service sector needs to be reduced, so it may accelerate India’s growth. In prior years, in recent times, we have not seen anything progressive as such via the budget. Investment norms in some parts of the sector have already changed, for encouraging investment. The industry has been asking for lower duties on STBs so that digitization can progress and benefit millions of consumers. This is vital. As for the last year, the economy has been slow, sluggish and behind expectations – 2012 has been a disaster!