Budget 2024: Reducing tax burden tops M&E industry’s wish list

As Finance Minister Nirmala Sitharaman readies to present her 7 consecutive Budget and the first Budget of the Modi 3.0 government, there are varied expectations from different industries and sectors. While overall, there is expectation that the growth driving measures will be continued, there are also certain areas where the industry wants changes.

The tax regime is one of those areas. Players in the media and entertainment (M&E) want the tax burden to be reduced, while some have called for a tax holiday. Here’s what India’s M&E industry wants from Budget 2024-25:

Prashant Bhojwani, Partner, Corporate Tax, Tax & Regulatory Services, BDO India:

“The Indian media and entertainment (M&E) sector continued its growth trajectory to reach $28 billion in 2023, with digital media and online gaming witnessing the highest growth. Digitisation has redefined the sector, bringing up new opportunities. With the Union Budget round the corner, all eyes are on whether the proposals will foster an ecosystem for the Indian media and entertainment (M&E) sector to continue its rapid expansion.

Foreign direct investment (FDI) in print: Currently, Foreign Direct Investment (FDI) in print (news and current affairs) is capped at 26%. Globally, the print sector faces challenges due to digitalisation. Considering the trend of liberalising FDI caps and the sector’s need for investments in digital assets, it is advisable for the Government to consider increasing the FDI cap for print to 49% under the automatic route, similar to the radio sector. This would help in attracting foreign investments into this traditional sector, supporting its modernisation and growth.

Tax holiday: Despite being the largest producer of films globally, with approximately 1,700 films annually, India’s screen density is only 6-8 screens per million population compared to China’s 30. Screens have a ripple effect on the economy providing opportunities for other economic activities such as housekeeping and food and beverage services, besides serving as a platform for film monetisation. Given this backdrop, the Government should consider introducing a tax holiday for new theatres [similar to section 80-IB(7A) of the Income-tax Act, 1961] to encourage investments in the exhibition business as well as streamline the approval process for opening new screens.

Infrastructure status: Broadcasting is inherently a capital-intensive business and requires substantial investments in digitisation, technology upgrade, infrastructure architecture and continuous content development. Despite these requirements, the broadcasting sector currently lacks infrastructure status. Granting this status would be beneficial as it could help in securing financing for future growth initiatives, among other advantages.

Online gaming is one of the fastest-growing sectors globally and unsurprisingly, it has witnessed a massive upsurge in India, contributing to revenue generation and creation of employment opportunities. This transformation has led to the Government enacting specific provisions under Income-tax and Goods & Services Tax for online gaming. In this context, the Government should consider formulating a comprehensive policy to (a) introduce international best practices for the sector, (b) create distinction between real-money games and other online games, while simultaneously fostering technological innovation.”

Hiren Gada, WTD & CEO, Shemaroo Entertainment:

“The growth of the media and entertainment industry relies on consumers’ ability to spend on leisure and entertainment. To increase disposable income, focusing on boosting employment through nationwide programs and reducing the tax burden to enhance discretionary spending are essential. Additionally, incentives for emerging industries, favorable tax policies, and support for tech and R&D can sustain a healthy start-up ecosystem.

Looking ahead to the Union Budget 2024-2025, we anticipate a budget that not only sustains our growth, but propels us towards new horizons. The allocation of funds and providing financial incentives to stimulate research and development in technology, especially artificial intelligence, for the media and entertainment sector will be beneficial. This could include grants, tax credits, and subsidies for businesses engaged in innovative tech solutions.”

Mautik Tolia, Managing Director, Bodhitree Multimedia:

“'We’re hopeful for measures that will boost our global competitiveness. Our expectations would be to increase the subsidies on international productions to attract more business. Special tax SOPs to be given to the VFX and Animation industry on their international work orders. We expect the establishment of a dedicated fund by the government to boost content creation and the media technology space, with a special focus on investing in AI and content creation, keeping the international markets as the target.”

Kaushik Das, Founder and CEO, AAO NXT:

“The Indian media and entertainment (M&E) industry is flourishing, bolstered by the surge in OTT platform usage, governmental support for digital infrastructure, and the ever-growing enthusiasm for cinema. Despite numerous tax reforms introduced over the years, several critical issues remain that need to be addressed in the upcoming Union Budget.

One major challenge involves the TDS (Tax Deducted at Source) system. Currently, taxpayers face significant difficulties in reconciling TDS with their income due to timing differences. To alleviate this burden, it would be beneficial if the Income-tax Act allowed for TDS credit as reflected in Form 26AS for the corresponding year.

Advertising agencies also face hurdles with the existing TDS framework, which impacts their cash flow due to TDS being applied to the gross billing amount. Lowering the TDS rate on payments from advertisers to these agencies would help ease this financial strain.

Additionally, payments to foreign satellites and data centers are presently classified as royalty or fees for technical services, making them subject to withholding tax. Clarifying that these payments are not taxable in this manner would greatly assist M&E companies utilizing these services.

Moreover, the rules for carrying forward losses during company amalgamations should be expanded to include M&E sector companies, fostering growth and consolidation within the industry.

On the GST front, implementing the proposed changes from the recent GST Council meeting, such as the amnesty scheme for waiving interest and penalties and reducing pre-deposits for filing appeals, would significantly reduce ongoing litigations and create a more supportive business environment.

A pressing concern for the industry is the taxation of online games. The sector advocates for a 28% GST on Gross Gaming Revenue rather than the total amount deposited by players, aligning the tax structure with industry needs.

OTT platforms, in particular, have become a cornerstone of the M&E industry, revolutionizing how content is consumed and distributed. The government’s continued support for digital infrastructure is crucial in sustaining this growth. However, the sector faces specific challenges, such as the need for clearer regulations around content and taxation policies that reflect the unique nature of OTT services. Streamlining these regulations would not only enhance compliance but also encourage further investment in the sector.

The government’s ambition for a ‘Developed India’ by 2047 is commendable. Favorable policy and tax measures for the M&E sector, especially focusing on the rapidly evolving OTT space, in the upcoming budget will be crucial in driving the industry's growth and achieving this vision. At AAO NXT, we are committed to fostering innovation, promoting regional storytelling, and contributing to the vibrant digital entertainment landscape in India and beyond.”