New Delhi: The Indian media industry seems to be at the cusp of good times after the government slashed the basic corporate tax rate to 22% from 30% on Friday. A domestic company can pay income tax at 22% if they don't seek any exemption or incentive. However, the effective tax rate will stand at 25.17% inclusive of all surcharges and cess for such domestic companies.
According to media industry experts, this means positive news for the newspaper, television and other segments, which have been struggling with a fall in advertising revenues.
“There are both direct and indirect benefits for the media industry," said Jehil Thakkar, partner at Deloitte India. “Directly of course, the reduction in tax will mean higher cash flows for the industry in distressed times. Indirectly, too, this could drive new product launches and the establishment of companies that could prove to be a catalyst in healthier advertising in times to come."
According to the KPMG media and entertainment report 2019, the share of print in total advertising fell to 32% in FY19, against 35% in FY18. The Ficci-EY media and entertainment industry report 2019 said that newspaper advertising revenue grew 1%, while magazine advertising fell 8%.
Earlier in January, the Ministry of Information and Broadcasting had announced a 25% rate hike for government ads in print media, over and above the existing rate structure by the Bureau of Outreach and Communication (erstwhile Directorate of Advertising and Visual Publicity). This was followed by an 11% hike in advertisement rates offered by the BOC for private TV channels.
Finance minister Nirmala Sitharaman said the revenue foregone for the reduction in the corporate tax rate and other relief measures announced will cost the government Rs. 1.45 lakh crore per year. Over the past few weeks, the government has announced a series of measures to boost growth that had fallen to a six-year low of 5% in the June quarter.
“A reduction in corporate tax rate to 25% is indeed a great reform. It is another positive fillip by the government. This step is a great enabler for Indian companies. Speaks a lot about the government's focus on economic growth. A very bold move," Punit Goenka, managing director and chief executive officer, Zee Entertainment Enterprises Ltd, tweeted.
Girish Agarwaal, promoter director, Dainik Bhaskar Group said the reduction in tax rate will significantly improve profitability and conserve funds in the hands of corporates for further investments which in turn should have positive effects on overall economic growth.
"We are also happy to note that this brings India at par with global norms of corporate taxation which would invite global investment. The GDP growth should lead to improved consumption sentiment and a boost to Make In India," Agarwaal said.
PVR gained 9% on the BSE on Friday and ended at ₹1,717 on the NSE.