Budget 2023: M&E industry left wanting in previous budgets; hopes for proposals to fuel growth

The Union Budget 2023-24 will be announced by the finance minister in February tomorrow (February 1) and the Media & Entertainment (‘M&E’) industry is looking forward to the policy and tax measures that can catapult the industry to an unparalleled growth trajectory.

The M&E industry has redefined itself fuelled by the growth of digital infrastructure, digital media adoption, and digital assets, especially since the pandemic. The industry is expected to grow at a CAGR of 13 per cent to reach Rs 2.3 trillion in 2024. The industry believes that it can support the government’s aspiration of making India a $5 trillion economy and therefore, Budget proposals to fuel the growth of the industry will go a long way in meeting the above objective.

Some of the major expectations of the industry are:

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1)  Grant infrastructure status

Since the onset of COVID-19 pandemic, the M&E industry has been one of the most impacted due to the stoppage of content production, cuts in advertising spending, closure of theatres, and cancellation of sports events in India.  The industry continues to face stunted growth even post-relaxations. Given the importance of the industry and the significant employment it generates, the industry wants to be granted ‘infrastructure’ status.

2)   PLI status for sector

Given the increasing demand for content globally, there is an opportunity to make India a hub for content production exports, on account of the low cost of production (including equipment hire and low cost of labour) and adoption of a host of technological advancements such as VFX, 3D/ 4D formats, drone shooting, animation, etc.  The introduction of production-linked incentives (similar to the IT / ITeS industry) will provide impetus to local content production by reducing the cost of doing business. With this, even international content production can be brought to India – which will lead to the development of world-class infrastructure, an impetus to tourism, technological advancement, and increased exports. UK, Canada, and Australia are some of the prime examples where this has been proven.

strong>3)   Reduce cost of production of TV sets

The television (TV) penetration in India is still only around 210 million (of over 300 million) households. There is a need to grow TV penetration by providing incentives to reduce the cost of production of TV sets and consumer-end reception equipment. Perhaps, providing incentives like production-linked incentives for low-cost TV sets and related equipment will help increase TV penetration.

4)   Need for domestic Make-in-India impetus

The Out-of-Home segment is rapidly digitising and the need for screens is paramount. Most screens are being imported today, mainly from China. Domestic Make-in-India impetus can be considered to enable the production of OOH screens in India.

5)   Increase affordable screens for films

There is also a need to increase affordable screens to protect and grow the film industry. Incentives for investment in low-cost exhibition spaces and technical infrastructure would be imperative to achieve the objective.

6)   Do not tax NFTs on lines of other virtual digital assets

The use of virtual digital assets and Non-Fungible Tokens (‘NFTs’) emerged as a revolutionary trend in India for owning assets and undertaking transactions in the digital economy.  For the first time, the Union Budget 2022-23 introduced a tax regime to tax the sale of virtual digital assets by imposing a 30 per cent tax on the sale of virtual digital assets and introducing a withholding tax. The same tax regime was made applicable to NFTs. An NFT is merely a title record of an underlying asset on the blockchain and therefore as a concept, differs from other virtual digital assets such as cryptocurrencies.

Taxing NFTs on the same lines as other virtual digital assets coupled with the lack of clarity on the regulations has led several NFT players to explore offshore jurisdictions to conduct their operations, thereby, impacting the technological development and innovation in the country. The government should implement forward-looking tax policies and separate NFTs, which should be taxed as per general tax principles, from other virtual digital assets.

7)   Provide clarity on tax to online gaming industry

The online gaming industry has the potential to scale rapidly and become a significant contributor to the government’s vision of a trillion-dollar digital economy. The Indian gaming companies have been subject to intense tax scrutiny and litigation from the Indian tax authorities from both Goods and Services Tax (GST) and Tax Deducted at Source (TDS) standpoint wherein, the tax authorities have sought to impose huge tax demands.

A major point of litigation with the tax authorities has been the GST rate (18 per cent vs 28 per cent) and the valuation of services for applicability of GST (Gross Gaming Revenue vs gross receipts) in the case of skill-based gaming platforms.  While the GST Council along with its appointed committee of Group of Ministers is deliberating on the issues of GST rate and valuation, the gaming companies expect clarity and the earliest resolution of the issues which do not adversely impact the businesses.

8)   Consultative approach needed on TDS

Changes in the existing TDS threshold of Rs 10,000 on payment of winnings could have an adverse impact on the growth of the sector.  With a view to curbing any tax leakages and ensuring tax compliance from the users of the gaming platforms while ensuring a stable and progressive tax regime, the government should follow a consultative approach before introducing any changes in the TDS provisions.

9)   Ambiguous tax on NRIs hosting Live events in India

The live events and sports sector is slowly picking up pace since the COVID-19 pandemic. However, taxation of non-residents looking to stage events in India continues to be ambiguous since the Supreme Court ruling in the case of Formula One. Given the population demographics in India, a certainty in tax regime coupled with concessions for live and sports events organisers would help promote India as a hub for such events.

10)Provide clarity on levy on NRI e-commerce operators

Since the expansion of the scope of the Equalisation Levy to cover e-commerce transactions in 2020, non-resident e-commerce operators continue to grapple with issues relating to the scope of the levy, particularly with respect to the applicability of the levy to the sale of physical goods online. In this digital age, where every business has adopted technology to conduct business, the government should provide clarity on such issues and exclude the physical supply of goods sold through online mediums from the ambit of the levy.

The industry has been left wanting in the past budgets and looks forward to 1 February, 2023, with the hope that the Government will meet the required expectations of the industry.

The writer is Partner-Technology, Media & Entertainment, EY India. He tweets @EY_India. Views expressed are personal.

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