MEDIA & ENTERTAINMENT SECTOR Indirect tax issues
Indirect Taxes on M&E Industry 2 List of Key Indirect Taxes applicable to Media & Entertainment Industry: Service tax Value Added Tax or VAT (state specific legislation) Entertainment tax Customs duty
1 Service tax recent changes
Service tax new approach 4 Service Tax changes Completely new approach for levying service tax to substitute the existing framework Over 100 notified taxable entries proposed to be replaced by definition of service and selected few definitions Taxability under Negative list regime to cover all services except those included in negative list or in exemption notification Service defined to mean any activity for consideration carried out by a person for another and includes Declared Services Activity not defined but deemed to be term with connotation and to include active or passive activity
Service tax negative list framework 5 Budget Proposal key Inclusions and exclusions Service to exclude: Transfer of title in goods or immovable property by way of sale, gift or any other manner activities constituting deemed sale of goods transactions in money or actionable claim services by employee to employer fees payable to a court or a tribunal Declared services to include : Renting of immovable property Construction services Works contract for moveable and immovable property Temporary transfer of IPRs Information technology software related service Agreeing to refrain from an act including non-compete Agreeing to tolerate an act or a situation Supply of tangible goods without possession
Service tax negative list framework 6 Budget Proposal Negative List (Services not liable to tax) List of 17 services to be included in the Negative List Key services under Negative List : Admission to entertainment events or access to amusement facilities Entertainment events to mean event / performance intended for recreation, pastime, fun or enjoyment, by way of exhibition of cinematographic film, circus, concerts, sporting event, pageant, award functions, dance, musical or theatrical performances including drama, ballets or any such event or programme Selling of time and space for advertisements (other than radio/ television) Betting, gaming and lottery Services provided by Government, RBI, local authority Services by way of extending deposits, loans, or advances for interest or discount Services by government Trading, manufacturing Education services
Service tax new exemptions 7 Budget Proposal Exempted services 34 exemptions provided Key Exempted services : Services provided by journalists Service by way of training or coaching in recreational activities relating to arts, culture and sports Temporary transfer of copyright to original artistic, musical, literary, dramatic work and cinematograph film Services by performing artists in folk or classical art forms of music, dance, theatre (Excluding as a brand ambassador) Services of player, refree, umpire, coach etc when provided to a recognised sports body Services by way of a sponsorship of events organized by notified sports bodies in India Services by an organizer to any person in relation to an event being held outside India
Service tax PoS 8 Place of Provision of Service Rules (PoS) PoS to be notified for determination of place of provision of service or place where the services have been agreed to be provided Depending upon nature of service, PoS to be generally linked to Location of service recipient Other services linked to Place of any immovable property Place of performance of service Place of event PoS for these services provided at more than one location location of such taxable territory from where the greatest proportion of service provided PoS Rules to apply on services provided inside the taxable territory irrespective of location of service provider and recipient
2 Issues in various Industries covered Film Industry Print Industry Broadcasting Advertising Agency Sports
3 Film Industry
Films Multiplicity of taxes Producer/Film Production Company Transfer of Distribution Rights Transfer of Rights to Exhibit movie Distributors Service Tax 1, Vat 2 and Stamp duty 3 Service Tax 1, Vat 2 and Stamp duty 3 Exhibitors/Theatre Owners 1. Service tax on the temporary transfer/ granting right to use in the intangibles such as Copyright 2. Granting of rights in the film is considered to be licensing of Intangibles and is sought to be imposed with VAT 3. Stamp Duty at 0.5% under the Bombay Stamp Act is leviable on performances, distribution of films, assignment of copyrights etc 4. Entertainment tax is levied on the ticket value charged to viewers Exhibits movie to Viewers Entertainment Tax 4 Viewers
Film Industry Impact of Multiplicity 12 Producer s share a mere 18% of box office collection: Box office collection Rs 100 Exhibitor s share (assumed at 55% on average) Rs 38 Distributor s share and marketing costs Rs 8 Taxes Entertainment tax (at 45% in Maharashtra) Rs 31 Service tax Rs 3 Total VAT exposure in supply chain (in Maharashta) Nil Stamp Duty and other tax cascading in the supply chain Rs 2 Tax burden (200% of Producers revenue) Rs 36 Balance gross revenue of producer Rs 18 Low profitability to Film producers!
Films Current Scenario (service tax) 13 Appointment of Director, actors, music directors, lyricists etc Theatrical distribution/ exhibition (in appeal before High Court) Non - Taxable Taxable Inputs Producer/Film Production Company Output Taxable Taxable Music studios, post production studios, marketing agents (charge service tax) Non-theatrical distribution (satellite, internet, music etc)
Films New Scenario (service tax) 14 Appointment of Director, actors, music directors, lyricists etc Theatrical distribution/ exhibition Taxable Non-taxable Inputs Producer/Film Production Company Output Taxable Non-taxable Music studios, post production studios, marketing agents (charge service tax) Non-theatrical distribution (satellite, internet, music etc)
Film Industry VAT on Theatrical Distribution 15 VAT on Theatrical Distribution Rights Film Right owners license Theatrical Distribution Rights to distributors, distributors further license the rights to sub distributors / theatre owners Transferring right to use in copyright liable to VAT VAT charged by distributor not available as credit to the theater owner against its entertainment tax liability Credit of VAT charged by state government not available as credit against Entertainment tax levied by same state government This leads to cascading effect of tax and accordingly carries additional cost burden in the supply chain
2 Print Industry
Print Industry Should be taxed? 17 It was also proposed to levy service tax under the Negative List framework However, advertising in media other than radio and television is included in the negative list and hence exempt from levy of service tax Additional cost to print media Amount received from sale of advertisement space in print media exempt from payment of service tax The service tax legislation defines print media to mean Newspaper and Book (not including business directories, yellow pages, trade catalogues for commercial purpose) No service tax liability on the print media organizations for the advertising revenue earned
3 Broadcasting
Broadcasting - Key Indirect Tax Issues 19 Syndication is sale or temporary transfer of right to use by the Licensor/Seller to Licensee/Purchaser to broadcast Television shows, Cinematographic films, etc. Temporary transfer of Copyright in Cinematographic films and Music is liable to service tax under Copyright Services Intangibles such as Trademarks, Copyrights have been considered to be goods under VAT legislations and hence their transfer is liable to VAT Under Proposed Negative List Framework: Trading of Goods in the Negative List and hence not liable to tax Temporary transfer or permitting use or enjoyment of Copyright in clause (a) and (b) of section 13 of Copyright act, 1957 covered under exempted services and may not be liable to Service tax. This may entail heavy reversals of Cenvat credit under Cenvat credit rules
Broadcasting Taxability of foreign channels Under current service tax regime foreign broadcaster s agent pays service tax in capacity of deemed broadcaster Thus, while the Indian agent earns only a fraction of advertisement and distribution revenue, entire amount was subjected to tax Broadcasting agents are registered for service tax and discharging full tax liability No such provision exists in negative list regime No clarity on whether Indian agents liable to pay tax on entire amount? If Indian agent not made taxable, advertisers or channel distributors will have to pay tax on reverse charge Additional tax compliance on customers may influence decision making in favour of Indian broadcasters
4 Advertising Agency
Advertising Agency - Key Indirect Tax Issues 22 Under Negative List framework: Sale of Space and Time on Radio and Television are not included in Negative List and shall be liable to Service tax Sale of space/time for advertisement on non conventional media such as Hoardings, Neon boards, Bill boards, Print, etc included in the Negative List and hence shall not be liable to Service tax Until now, agency commission earned by advertising agency labile to service tax under the category of Advertising agency service; Under Negative list framework it shall still be liable to tax Issue in relation to Cenvat Credit : Sale of Space and Time other than on Radio and Television is included in Negative List, therefore there shall be issues in connection to Cenvat credit
Advertising Agency - Volume Discounts 23 Service tax on incentive / volume discount given to Ad agency Advertising agencies are appointed by advertisers to place their advertisements with different media The Agency acts as link between advertiser and media owner for placement of these advertisements Agencies charge commission from Advertisers and pay service tax on the commission Media companies may set targets for ad agencies to achieve could be volume based target or revenue based target On achieving the targets, media companies may provide incentives (termed as volume discounts) to agencies Whether service tax should be paid on such target incentive / volume discounts under BAS? Under Negative List, Service may be Active or Passive, the consideration paid above leviable to Service Tax?
5 Sports
Sports Difficulty to Conduct event In India 25 Entertainment tax is payable on hosting any event in India Entertainment tax rates are erratic in may States Generally entertainment tax exemptions are not available for international events (football, golf etc) Exemption procedures and compliances vary for each State ATA Carnet benefit only available for exhibition and fairs Internationally, ATA Carnet can be used even for professional equipment and commercial samples Service tax on admission and organising event now taxable if event held in India Many international conferences/ summits held in India managed by foreign companies now taxable
Sports IPL (central rights) 26 Service Tax on Central Rights Income for Teams Right to commercially exploit the media rights in a sports event is licensed/leased to broadcaster for a consideration, such consideration received are Central rights/media rights income Applicability of Service tax on share received in Central Rights/Media rights Income by teams participating in the tournament Taxability under negative list unknown?
Sports IPL (player fees) 27 Service tax issues on Player Fees Fees is paid to players for participating in sports events and in promotional events for the team and the tournament Service tax authorities seek to levy service tax on the portion of player fees attributable to participate in promotional events Such Service tax to be additional cost Under negative list, service of individuals as a player, referee, umpire, manager etc only organized by recognized sports body is exempted Such individuals working for IPL now liable to service tax Higher input tax credits for IPL teams and hence, higher loses
THANK YOU Utkarsh Sanghvi utkarsh.sanghvi@in.ey.com, +91-22-61922086, +91-9820511499
Entertainment tax across various states States Entertainment tax on sale of film tickets (%) Andhra Pradesh 25% Bihar 50% Haryana 30% Karnataka 30% Madhya Pradesh 20% Maharashtra 45% Orissa 25% Punjab 0% Rajasthan 0% Tamil Nadu 33.33% West Bengal 30% Uttar Pradesh 67% Kerala 15 to 30% Delhi 30% States such as Punjab and Rajasthan have granted exemption from the levy of Entertainment tax on the all the movies Certain states like Maharashtra, Andhra Pradesh, etc have exempted Regional movies from levy of Entertainment tax Certain states also grant conditional exemption from levy of Entertainment tax to Multiplexes In some state besides entertainment tax, advertisement tax is levied on sale of time slots by theatre owners for showing advertisements on movie screen