Mumbai: India’s move to simplify the customs duty on imported films will help the entertainment industry cut costs, but imposing service tax on intellectual property (IP) rights could be a dampener, officials said.
In the 2010-11 Budget on Friday, finance minister Pranab Mukherjee said custom duty on movies imported on films or digital media will now be charged on the value of the medium used to carry the film, and not the value of the content.
The simplified customs duty will help companies cut costs by 15-20%, said M K Anand, chief executive of UTV Global Broadcasting Ltd, an arm of UTV Software .
“However levy of service tax on IP would have some cost implications and this remains to be seen,” he added.
Companies such as UTV can now bring in international content to India at a minimal price, benefitting the gaming industry, Hollywood producers and channels, analysts said.
The government has exempt promotional material such as trailors brought into India from basic customs duty and countervailing duty.
“This move would bring about a rationalisation in the sector, which would make it a lot easier to bring in international content into India,” Timmy Kandhari, leader, entertainment and media at PricewaterhouseCoopers India told Reuters.
However, the introduction of a 10% service tax on IP may negate some of the benefits as most of the money is made through intellectual property rights.
“This is a setback for the industry. How can the government classify what was earlier a product, and hence qualified for VAT (value added tax) as a service?” said Hiren Gada, director of Shemaroo Entertainment, a production and distribution house .
Intellectual property rights were earlier subject to a 4% value-added tax in some states.
“There will be some ambiguity over whether IP comes under VAT or services tax for a year till the Goods and Services Tax comes into effect next year. Till then, we have to live with this,” Kandhari of PricewaterhouseCoopers said.
Shares of media firms mostly closed down 1-3% in a firm Mumbai market.