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I&B mulls fewer taxes on DTH, cable operators
October, 10th 2008

DTH & cable operators can look forward to a lighter tax burden. The information & broadcasting ministry is examining the options to end the multiple taxation of these companies through central and state levies. These include service tax to the central government and entertainment tax to various state governments.

The issue is quite similar to the demands of the telecom operators who are subject to several levies, thereby, paying around 30% of their gross revenue as taxes. DTH & cable operators claim they pay as much as 56% of their subscriber fee as taxes.

The I&B ministry has formed a core committee with representation from the department of revenue in the finance ministry, the Telecom Regulatory Authority of India, state governments and industry members. The committee is also looking at the methodology of bringing about uniformity in the variable rates of entertainment tax across states on cable & DTH services, to graduate to a single levy. Following a round of meetings, the ministry has informed the finance ministry that it favoured rationalisation of the taxation structure in principle, as that would also benefit the viewers.

Sources said the committee would look to bring in a uniform tax structure for states based upon different rates for digital and analogue systems.

One way of solving the issue of dual taxation is to abolish the entertainment tax and only levy a service tax, which then could be shared between the Centre and the states.

The committee would also evaluate whether the sharable revenue of industry players would actually go up if such a scheme is put into place.

Multi-system operators (MSO) alliance president Ashok Mansukhani said, "We appreciate the governments move to constitute the committee and actively consider the matter. However, we request the ministry to expedite the matter and send the final recommendations to the finance ministry latest by December, failing which the possibility of the issue being taken up in the coming budget is bleak.

However, industry sources said that the finance ministry does not favour providing any tax incentives, especially to sectors like DTH, which is recording a CAGR of 32%. Sources said the finance ministry wants the balance sheet of DTH operators to be scrutinised before any relaxation is made. Further, the entire issue also needs to be vetted by the law ministry.

The cable & DTH operators currently pay entertainment tax on an ad valorem basis at 15-30% or at a specific rate of Rs
 10 to Rs 25 per connection or around Rs 15,000 as a lump sum on an annual basis. On top of this, the operators pay a service tax of 12.36%. The anomaly is that sectors like cinema halls and theatres only pay entertainment tax and no service tax.

Jawahar Goel, managing director, Dish TV, the largest DTH operator with a subscriber base exceeding 3.5 million, feels the entire problem should be split into parts and then addressed holistically to arrive at a solution. Avnindra Mohan, executive vice-president, Zee Networks, said, If the era of digitalisation has to be ushered in the cable sector, 95% of which is still on analogue mode, the tax structure has to rationalised.

The recently formed DTH Operators Association India had sought the governments intervention in the tax matter. The telecom and broadcast regulator has also endorsed the view that the industry was reeling under maultiple taxation & levies and there was a need for their rationalisation.

Instead of multiple taxes like service tax, entertainment tax, licence fee and value added tax, the regulator has in the past endorsed that services such as DTH be categorised as a service and only a service tax be levied on them

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