Public Policy & Regulations

TRAI’s differential pricing verdict and what it means for Net Neutrality

TRAI’s much-awaited Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016 is being hailed for its support of net neutrality. The order comes nearly two months after the regulator first floated a paper questioning whether differential tariffs should be allowed for data services linked to specific content.

TRAI’s paper examined the legality of such tariff plans, and whether these will end up being discriminatory. TRAI’s paper was linked to one of the key principles of Net Neutrality: that all data should be treated equally, with no preference in speed or pricing to any particular set of content.

In a latest decision TRAI has ruled against differential data pricing tied to content services from telcos and others effectively ending zero-rating platforms in India.

In its response to the TRAI’s consultation paper on the subject, IBF had supported net neutrality and was opposed to the idea of differential pricing.

Broadcasting Sector: Grant of ‘Infrastructure Status

One of the issues that IBF has always raised at various forums is the grant of ‘infrastructure status’ to Broadcasting Sector. IBF has done a lot of groundwork and advocacy on this aspect and continues to work with the Ministry of Finance and Ministry of Information and Broadcasting to get the sector its legitimate due. This finds a testimony in the Information and Broadcasting Minister Shri Venkaiah Naidu’s acknowledgement of IBF in a starred question asked in the Rajya Sabha. While replying he said, “Indian Broadcasting Foundation had provided a pre-budget memorandum for Union Budget 2016-17 requesting the grant of Infrastructure status to the Broadcasting Industry. The Ministry after examination of the request of IBF had recommended the demand of the Industry to declare it as a infrastructure to the Ministry of Finance, Department of Economic Affairs which is the administrative Ministry concerned in the matter for an appropriate decision.”

Krishi Kalyan Cess (KKC)

A retrospective tax impact had crept into the realm of service tax due to the 0.5 per cent Krishi Kalyan Cess (KKC), even though it came into effect from 1 June 2016 owing to an explanation of Rule 5 in the Point of Taxation Rules, 2011 which provided that KKC may also apply in situations where services have been rendered and invoices raised by the service provider before June 1, but where money is realized from customers after 1 June 2016.

IBF, along with members of the CFOs Committee and Tax Experts, has had several rounds of meetings with Finance Ministry officials, including Chairman, Central Board of Excise and Customs (CBEC), seeking to resolve the imbroglio surrounding the new levy. Several representations were also made to the Finance Ministry, which included a detailed depiction of the business model of broadcasters and complications arising out of retrospective application of KKC.

IBF had also requested support from Advertising Agencies Association of India (AAAI) and Indian Society of Advertisers (ISA).

Consequently, the Finance Ministry, vide its Notification No. 35/2016-Service Tax dated 23 June 2016, exempted taxable services with respect to which the invoice for the service has been issued on or before the 31 May 2016, from the whole of KKC leviable thereon, subject to condition that the provision of service has been completed on or before 31 May 2016.

This initiative from IBF has subsequently saved broadcasters hundreds of crores of rupees and got acknowledgment and appreciation from the IBF Board.

FDI limit raised for TV channels

The Government of India, in a review of the foreign direct investment (FDI) policy for 15 sectors, raised the FDI limit in news channels and FM radio to 49%, up from the existing 26%.

Foreign investment limit in DTH, digital cable networks and so-called Headend in the Sky services (HITS) - a satellite based system to deliver TV channels to cable operators—was raised to 100% from the existing 74% to allow foreign strategic investors to look at Indian companies.

To be sure, only up to 49% FDI has been allowed in the cable, DTH and HITS services through the automatic route. For 100% FDI, companies need to seek approval from the foreign investment promotion board (FIPB).

Similarly, companies would require government approval for 49% FDI in news channels. But 100% foreign investment in non-news channels—or entertainment broadcasters—will be allowed through the automatic route.

FDI inflow would provide the impetus required by the sector to take it to the next level. With digitization in its final stages, the growth opportunity will not be lost on foreign investors who wish to invest in the country on account of improved transparency.

There is no change in the foreign ownership norms for print media, in which FDI remains capped at 26%.

This FDI change would help the broadcasting sector keep pace with changes happening globally and infuse the much-needed funds to take their operations to the next level other than bringing in the global expertise, innovation and better programming.

GST: One Nation one Tax

The passage of GST Amendment Bill in the Rajya Sabha and Lok Sabha subsequently has paved the way for a uniform tax structure across the country. The M&E industry, which is a sunrise sector with a rapid growth curve, recognizes that the basic objectives of broader tax base, minimum litigation and minimization of cascading effect of taxes can be achieved under GST regime.

For the said tax reform to deliver on its promise, it is imperative that the design of procedures for the tax system under the GST regime should meet the basic tenets of neutrality, simplicity and fairness.

IBF has requested the Government of India to steadfastly stay the course for GST implementation from April 1, 2017 after being ratified by two-third of the states which however involves establishment of the legal framework, IT infrastructure and management change.

Clarifications from the Central Board of Direct Taxes (CBDT) on Tax Deducted at Source

1)TDS in case of agency vs broadcaster-

In a major relief to the broadcasters, apropos to the submissions made by IBF in its Pre-Budget Memorandum and several other submissions to the Finance Ministry, the Government issued a Circular dated 29 February 2016 clarifying that no TDS is attracted on payments made by advertising agencies to media houses. This clarification has come as a major relief to the entire broadcasting sector helping companies to come out from several hundred crores of ‘tax notices’ by the Ministry of Finance.

2)TDS rate clarification in case of content development alternatives-

Through a separate Circular dated 29 February 2016, the Finance Ministry has clarified that in case payment is made to the production house by broadcaster for production of content/programme as per the specifications of the broadcaster then TDS is applicable under Section 194(c) of the Act. However, if the broadcaster is acquiring the broadcasting rights of the content already produced by the production house, then TDS is not attracted under Section 194(c). However, TDS under other sections under Chapter XVII-C of the Act shall apply.

Non requirement of PAN number

Earlier as per section 206AA, it was mandatory for non-residents to obtain PAN in order to avail withholding tax rate as per Income Tax Act / Tax Treaty else the tax was needed to be deducted at the higher rate of 20%. Also, in many cases where the tax is to be borne by Indian parties, the overall cost of the Indian party is increased due to non-availability of PAN. Further, provisions of section 206AA suggest that it overrides Tax treaties signed by India with other countries. The Government has amended section 206AA so that a non-resident taxpayer need not furnish a PAN to avail of the beneficial 10 per cent withholding tax rate on royalties/fees for technical services, subject to provision of prescribed details.

Duties on Set-top boxes becomes zero

In order to push digitization in Phase-III and Phase-IV, IBF had proposed that customs duty on STB be reduced for next three years. The Government has announced a reduction of 10% customs duty on digital head-ends and STBs. This will lead to lower STB prices and hence lower capex and would help lower subscriber acquisition cost.

Channel Licenses/Security Clearances

For the last few years, the industry has witnessed a huge backlog on pending license approvals/renewals and security clearances. These logjams were primarily attributed to internal process-related delays at various ministries and departments. This potential delay in granting of licenses and security clearances resulted in locking of investments. IBF initiated a dialogue with both the Ministry of Information & Broadcasting and Ministry of Home Affairs after an internal compilation reflected more than 160 pendency of such cases. IBF’s intervention has not only resulted in Ministry clearing most of the pending licenses of IBF members but also leading to simplification and streamlining of the process of granting security clearances, renewals and licenses.

Intellectual Property Rights: Interface with Department of Industrial Policy & Promotion (DIPP)

In a move that IBF had been advocating for a long time, to consolidate all IP-related functions, the Government has transferred copyrights from the ambit of the Human Resource Development Ministry to the Department of Industrial Policy and Promotion (DIPP).

The government has taken this decision to facilitate better coordination and uniformity in decision making at national and international levels under a single department. DIPP already administers the Patents Act, 1970, The Trade Marks Act 1999, The Designs Act, 2000 and the Geographical Indication of Goods (Registration and Protection) Act, 1999. Being the nodal department for matters concerning the World Trade Organization (WTO) and World Intellectual Property Organization (WIPO), an IBF-led delegation had also met the Joint Secretary, DIPP to apprise him on the urgency to set up a Copyright Board. The constitution of the Board is at a very advanced stage.

A detailed representation has also been submitted to DIPP to cover issues like:

1)Setting up of a Copyright Board which is absolutely essential for the enforcement of the rights and redress of grievances

2)Setting up of Copyright Societies (Registration rates of royalty) for the issuing of licenses and collecting royalties

3)Setting up of IPR Cell and Enforcement Kit which will not only drive enforcement but monitor administration and the lack of which results in profligating piracy

4)The need to harmonize the freedom of contract of the broadcaster (along with the right to earn revenue) with sector regulations with the right of the public and with the sector regulations. This is important as in broadcasters are obligated to provide access to its signals in a non-discriminatory manner and on the other there is a restriction on the rate that can be charged as regulations of the TRAI Act has frozen it since 2004.

5)The urgent need to remove inconsistencies/ambiguities caused by Sections 38 and 38 A in respect to performer’s right (limited to live performance)

6)The need to ensure that the STBs deployed by the DPOs are BIS compliant and technically compliant with the requirement prescribed by TRAI for systems (SMS, CAS and STBs)

CBFC’s reforms and Shyam Bengal Committee Report

On January 1, 2016, the Government announced the constitution of a committee under the chairmanship of Shri Shyam Benegal to lay down a holistic framework for certification of films, specify norms for film certification that take note of best practices in various parts of the world and give sufficient and adequate space for artistic and creative expression, proposed procedures and guidelines for the benefit of the CBFC Board to follow and examine staffing patterns with a view to recommending a framework that would provide efficient and transparent user-friendly services.

IBF submitted a detailed representation to the Expert Committee on the industry concerns. A delegation of IBF members also met Mr. Benegal in Mumbai on 29 March 2016 and discussed the recommendations in detail.

The major highlights of the report:

1) CBFC should only be a film certification body with no power of excisions, modifications or amendments. The scope of certification process to be limited only to suggest what category of audiences (Age groups) can watch a particular film except anything contravening the provisions of Section 5B (1) of the Cinematograph Act, 1952.

2) The highlights of the recommendations of the committee broadly cover the areas related to Film Certification Process and its simplification, Restructuring staffing pattern of Central & Regional censor advisory panels and Recertification of films for purposes of telecast on television and measures to preserve the identity of Indian Cinema.

3 ) Regardng the categorization of films, the committee recommends that it should be more specific and apart from U category, the UA Category can be broken up into further sub-categories – UA12+ & UA15+. The A category should also be sub-divided into A and AC (Adult with Caution) categories.

4) The committee has also made certain recommendations regarding the functioning of the board and has stated that the Board, including Chairman, should only play the role of a guiding mechanism for the CBFC, and not be involved in the day-to-day affairs of certification of films. Therefore, the total composition of the Board should not be more than nine members and one Chairman.

5) Regarding the Regional Advisory Panel the committee has laid down the criteria for appointment. All nine regions will have advisory panels comprising persons who are acquainted with the languages being certified by that regional office.

6) Online submission of applications as well as simplification of forms and accompanying documentation

The main point that IBF had also raised with the Shyam Benegal Committee was that the CBFC Board’s thrust should be on certifying films and not indiscriminately censoring them. This is completely in keeping with the broadcaster’s perspective of artistic expressions and creative freedom not getting curbed, audiences feeling empowered to make informed viewing choices and the certification process being responsive to social changes. The panel’s recommendations of increase in number of film certification categories to U, UA 12, UA15 & AC (Adult with Caution) finds echo in the IBF’s demands.

What concerns the broadcasting sector most, perhaps, was the ‘random cuts’ suggested to filmmakers before their movies was made more ‘suitable’ for family viewing on Television. This was also dealt by the Shyam Benegal Committee in the form of recertification of films for Television which is a laudable step.