Media and Entertainment

Transcription

1 Media and Entertainment

2 Foreword The Modi Government s first full budget was keenly awaited to lay the roadmap for India s future, with the expectation of big bang reforms for growth and investment in India and promotion for Make in India. At the same time, there was a clear focus on fostering stable taxation policy and non-adversarial tax administration and also instituting measures to curb black money. Keeping in mind the above expectations, while presenting the budget, the Finance Minister in his speech adopted the following broad themes: Measures to curb black money; Job creation through revival of growth and investment and promotion of domestic manufacturing and Make in India ; Minimum government and maximum governance to improve the ease of doing business; Benefits to middle class taxpayers; Improving the quality of life and public health through Swachch Bharat initiatives; and Stand-alone proposals to maximise benefits to the economy. To curb and deal with the menace of black money, the Finance Minister in his speech has proposed the enactment of a new comprehensive law, which will have the following key features: Rigorous imprisonment up to 10 years for concealment of income and assets and tax evasion in relation to foreign assets and such offence being made non compoundable. No relief of settlement of matter available. Amendments proposed in the Prevention of Money-Laundering Act, 2002 and Foreign Exchange Management Act, 1999 to penalize transactions in respect of concealment of foreign income or assets To deal with revival of growth and investments, a number of key proposals ranging from tax pass through status for Pooled Investment Vehicles, clarity on GAAR and reduction of royalty and FTS rates for cross border transactions has been introduced. Besides this, in order to achieve the other themes, a number of proposals are proposed to be implemented in future, including a proposed reduction in the corporate tax rate from 30 percent to 25 percent over the next four years, beginning from the next financial year, accompanied with removal of certain exemptions and incentives for corporate taxpayers and a center for film production, animation and gaming in Arunachal Pradesh. To emphasize on stability and predictability as part of the tax regime, the Finance Minister reiterated that resorting to retrospective amendments shall be avoided and also made clear that Direct Tax Code ( DTC ) in its current form has been rendered redundant given that most of the proposals of the DTC have been incorporated in the Income-tax Act and very few aspects are yet to be covered. In his speech, to establish a business friendly environment, he emphasized advocating a preexisting regulatory mechanism to ensure fast and transparent business market. On the indirect tax front, the Finance Minister has indicated to introduce a state-of-the-art indirect tax regime in India through implementation of Goods & Services Tax (GST) with effect from 1 April In this backdrop, we have summarized below some of the key tax proposals announced in the Union Budget 2015 which may have an impact on the M&E Industry. Rigorous imprisonment up to 7 years for non-filing of return or filing return with inadequate disclosures Budget Connect

3 Direct taxes General No change proposed in the corporate tax rate with the exception of increase in surcharge for domestic companies: For domestic companies from 5 percent to 7 percent for total income exceeding INR 10 million (effective tax rate of percent) and from 10 percent to 12 percent for total income exceeding INR 100 million (effective tax rate of percent) Increased in surcharge rate will also impact income distributions. Considering nominal amount of wealth tax collections with significant amount of compliance burden on the taxpayer and administrative burden on the tax department, it is proposed to abolish the levy of wealth tax. The loss in revenue will be compensated through an additional levy of surcharge on Super Rich earning over INR 10 million. General Anti Avoidance Rules ( GAAR ) GAAR to be deferred by two years and be made applicable prospectively from Financial Year Grandfathering benefits extended to the investments made up to 31 March 2017 International tax proposals Presently, in a non-tax treaty situation, income by way of royalty and Fees for Technical Services ( FTS ) received by a nonresident, not effectively connected with its permanent establishment in India is taxed at the rate of 25 percent on gross amount of such income. In order to facilitate technology inflow to small businesses at low costs, income tax rate has been reduced from 25 percent to 10 percent. Vide retroactive amendment, the Finance Act, 2012 has enacted much debatable indirect transfer provisions by clarifying that asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India, if the share or interest derives directly or indirectly, its value substantially from asset located in India. To reduce the ambiguity on the scope of the term substantial interest on account of various judicial precedents and positions adopted by the tax department, the following clarifications, amongst others, have been introduced A share / interest of a foreign company shall be deemed to derive its value substantially from the assets located in India, if the value of the Indian assets (i) exceeds INR 100 million; and (ii) represents at least 50 percent of the value of all the total assets owned by the company. Guidance on the manner of computing the value of the assets and the exemption for the specified transactions to be has been laid down. An Indian company is now required to report every offshore transaction which results in directly / indirectly modifying the ownership structure of the Indian entity and failure to do so would attract a penalty. The penalty would be computed at 2 percent of the value of the transaction in respect of which such failure has taken place if the transaction results in transferring the management / control of the Indian entity. In all other cases, the penalty shall be INR 0.5 million. Also such Indian entity/ concern shall be required to furnish to the tax department such information and documents, as may be prescribed for the purpose of determination of any income accruing or arising in India. Pass through status to Alternative Investment Funds ( AIFs ) Presently, tax pass through status is available to Category-I AIF, Venture Capital Company or Venture Capital Fund in respect of income which arises to the fund from investment in Venture Capital Undertaking ( VCU ), being a company which satisfies the conditions provided in SEBI (AIF) Regulations, 2012 or SEBI (VCF) Regulations, 1996 as may be applicable. Budget Connect

4 To attract capital inflows from both domestic and foreign, it is proposed that the pass through status be allowed to both Category-I and Category-II AIFs, irrespective of whether they are set-up as a trust, company, or limited liability firm, etc so that tax is levied on the investors in these Funds and not on the Funds per se, to the extent of income other than profits/ gains from business. Now, income from passive investments in M&E sector by Category-II private equity funds or debt funds (not falling in Category-I and Category-III) shall qualify for tax pass through status. Transfer pricing To address the compliance cost in case of small businesses, the threshold limit for applicability of transfer pricing on specified domestic transaction has been increased from INR 50 million to INR 200 million. This would assist M&E startups in reducing their transfer pricing compliance burden in the initial incubation phase. Other key proposals The residential status of a company in India is currently determined on the basis of either incorporation in India or control and management of its affairs situated wholly in India during the year. The condition of wholly control and management in India has rendered the condition inapplicable as such company could have easily avoided becoming a resident by simply holding a Board meeting outside India. Accordingly, it is proposed to replace this condition with Place of Effective Management ( POEM ) at any time in that year. POEM is defined to mean a place where key management and commercial decisions that are necessary for the conduct of business entity as a whole are, in substance made. A set of guiding principles will be issued for the benefit of both, tax payers and tax administration. The above proposal is a significant change and offshore business models may have to be tested by M&E offshore companies undertaking business in India and outside India. The existing provisions in respect of furnishing information in the prescribed format in respect of payments to nonresident is proposed to be amended to provide that the person responsible for paying any sum to a non-resident, whether chargeable to tax or not, shall be mandatorily required to furnish the information relating to payment of such sum, in such form and manner as may be prescribed. It is proposed that a penalty of INR 0.1 million be levied for non-furnishing of such information. As per existing provisions on definition of charitable purpose, advancement of any other object of general public utility shall not be charitable purpose if it involves carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade commerce or business for a cess or fees or any other consideration. This provision was not applicable in case the receipts did not exceed INR 2.5 million. In order to protect the activities undertaken by genuine organizations as part of actual carrying out of the primary purpose of the organization, it has been proposed to amend this threshold of INR 2.5 million to 20 percent of total receipts of the trust or institution if such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility. It is proposed to empower the Central Board of Direct Taxes to make rules to provide the procedure for claiming foreign tax credit by resident taxpayers for taxes paid in other countries. As per the existing provisions, penalty for concealment of income or furnishing inaccurate particulars of income is levied on the amount of tax sought to be evaded. There have been various complications in computation of amount of tax sought to be evaded where computation of income is as per Minimum Alternate Tax ( MAT )/ Budget Connect

5 Alternate Minimum Tax ( AMT ) provisions or such other provisions. Further, various courts have also upheld the principle that penalty for concealment of income or furnishing inaccurate particulars of income cannot be levied where concealment of income occurs under the income-tax computed under general provisions and the tax is paid under MAT/ AMT provisions. Hence, it is proposed to provide that for levy of penalty, amount of tax sought to be evaded shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under MAT/ AMT provisions. However, if an amount of concealment of income on any issue is considered both under the general provisions and MAT/ AMT provisions, then such amount shall not be considered in computing tax sought to be evaded under MAT/ AMT provisions. Further, in case where MAT/ AMT provisions not applicable, the computation of tax sought to be evaded under MAT/ AMT provisions shall be ignored. As per the existing provisions, any capital asset transferred by the demerged company to the resulting company in a scheme of demerger is not regarded as transfer if the resulting company is an Indian company In such cases, presently, there is no express provision to determine the cost of acquisition or the period of holding of the asset in the hands of the resulting company. Accordingly, it is proposed to expressly introduce a provision clarifying that the cost of acquisition of a capital asset acquired by a resulting company shall be the cost for which the demerged company acquired the capital asset as increased by the cost of improvement of the demerged company. Indirect taxes Goods and Services tax ( GST ) The Finance Minister has indicated that GST should be introduced by 1 April GST is aimed at playing a transformative role in developing a common Indian market and reducing cascading effect. Service Tax Increase in rate Effective service tax rate has been enhanced from 12.36% to 14% (effective date to be notified) Imposition of Swachh Bharat Cess on all or any of the taxable services at a rate of 2% on the value of services. Services that are to be expected to be notified would be liable to effective tax rate of 16%. Levy of Education Cess and Secondary & Higher Education Cess have been subsumed in the effective Service tax rate of 14%. Clarity needed on unutilized outstanding balances of Education Cess and Secondary & Higher Education Cess in the books. Exemptions from Service tax levy Admission to entertainment events was specifically included in the negative list on account of the fact that the said activity is included in the State List and is subjected to State entertainment tax. This exclusion from the service tax net is proposed to be revoked and only specified services are proposed to be exempted. Now, admission to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks and theme parks etc is proposed to be liable to service tax with a date to be notified. Further, admission to entertainment event of concerts, pageants, musical performances concerts, award functions and sporting events other than the recognized sporting event, if the amount charged is more than INR 500 per person for right to admission to such an event, shall be liable to service tax. The Finance Minister has indicated to introduce a state-of-the-art indirect tax regime in India through implementation of GST. Services provided by performing artists in folk or classical art form of music, or dance, or theatre shall be liable to service tax, Budget Connect

6 where amount charged exceeds INR 1,00,000 for a performance. Exemption is given to service provided by way of exhibition of movie by an exhibitor to the distributor or an AOP, consisting of the exhibitor as one of its members. CENVAT Credit Time limit for taking CENVAT credit on inputs and input services increased from the present six months to one year from the date of invoice / challan. It is now specifically provided that where wrong credit is availed (but not utllised) it will initiate recovery proceedings. The facility of Advance Ruling is being extended to all resident firms. (e.g. LLP, sole proprietorships and One Person Company) Excise Duty Effective central excise duty has increased from 12.36% to 12.5%. Excise duty registration intended to be granted within two working days. Customs Duty Effective Customs Duty rate increased from 28.85% to 29.44%. Basic Custom Duty exempted on CENVAT Credit with respect to services under partial reverse charge mechanism, entitled to be availed on payment of service tax Penal Provisions Digital Still Image Video Cameras having specified capabilities Parts and components for use in the manufacture of such Digital Cameras. Penalty provisions Penalty Service tax, interest paid within 30 days from notice Service tax, interest and reduced penalty paid within 30 days of order Non wilful Evasion cases Up to 10% of service tax No penalty 25% of penalty imposed Wilful Evasion cases 100% of service tax 15% of service tax, provided such reduced penalty also paid 25% of service tax Others Issue of digitally signed invoices accepted along with option for maintaining of records in electronic form and their authentication by means of digital signatures. Service tax registration intended to be granted within two working days. Budget Connect

7 Comments The budget focuses on some of the Prime Minister s recently launched key initiatives of Make in India, Digital India, Swachh Bharat and Skill India. It is a forward looking and futuristic budget. The M&E industry has currently shown a good growth path, backed by strong advertising revenues. The government s initiatives of making a Digital India will provide greater impetus to this sector.. Also, the FM s intention of having a non-adversarial tax administration and stable tax policy (with clarifications issued from time to time) to remove ambiguities in interpretation of provisions, will provide a much needed relief to the taxpayer, who have been burdened with long drawn litigation and costs.

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