As India was slowly recovering from the good or bad impact of demonetisation in 2017, it was suddenly attacked by yet another fireball – the Goods & Services Tax (GST), which brought new challenges as well as opportunities. While Rahul Gandhi the leader of opposition once dubbed it as Gabbar Singh Tax, the GST was, indeed, a good idea to bring the nation under one tax, but the technicalities and implementation lacked vision and brilliance, which caused uneasiness in the markets as well as difficulties amongst the small traders causing losses and price escalation in almost all sectors including Media & Entertainment (M&E), broadcasting, cable TV, DTH, etc. However, the Indian economy is so tenacious that it continued on its growt h trajectory and so did the M&E sector.
As GST completed one year on 1 July 2018, it would be interesting to look back and see how it impacted our sector. On completion of one year, PM Modi hailed the Goods and Services Tax (GST) as a tool that has brought growth, simplicity and transparency. He said, "It is boosting formalisation, enhancing productivity, furthering 'Ease of Doing Business', benefitting small and medium enterprises. It is a festival of honesty which has ended 'inspector raj' in the country.”
But despite a lot of expectations, sectors had to go through many hurdles, including problems in the filing of transition returns, transitional credits, and refunds directly affecting the working capital for businesses. Many arbitrary provisions in the legislation led to a plethora of writ petitions being filed before High Courts, consuming significant time and resources for the industry and the judiciary.
FM Arun Jaitley speaks:
On completion of one year f the GST, the finance Minister Arun Jaitley wrote an article on his Facebook blog in which he said, “One single tax replaced seventeen taxes and multiple cesses imposed by the Central and the State Governments. The very foundational idea of the Goods and Services Tax was not original. It had been experimented in several countries of the world. The Indian model had to be devised keeping several facts in mind.”
The FM, who is recuperating from kidney transplant operation, added, “Look at the GST performance in the first nine months from July, 2017 to March, 2018, and add the entire amount collected - the CGST, SGST, IGST and the composition cess, to get the sum total of the GST collection. In the very first nine months, the total amount collected is `8.2 lakh crore – `11 lakh crores if annualised, yielding a revenue growth of 11.9 percent i.e. a tax buoyancy of 1.22, which has historically been achieved very rarely for indirect taxes and this in spite rates being lowered for consumers. As more and more anti-evasion steps will be put in place, the tax buoyancy will increase further. The GST will strengthen the country’s tax base for the medium term, adding up to an additional 1.5 percentage points of GDP.”
World Bank calls GST ‘most complex tax’:
The World Bank has said that India has the highest standard GST rate in Asia, and second highest in the world after Chile. It adds that GST is the most complex tax.
WB said: "The tax rates in the Indian GST system are among the highest in the world. The highest GST rate in India, while only applying to a subset of goods and services traded, is 28 per cent, which is the second highest among a sample of 115 countries which have a GST (VAT) system and for which data is available."
The GST Council moved almost 200 items from the 28 percent slab, leaving just 50 items in the highest slab. Similarly, several items have been moved to a 12 percent rate from 18 percent, 12 percent to 5 percent, and 5 percent to nil. It is expected that this will encourage more transparency by way of new registrants.
FICCI KPMG Report 2018 for M&E Sector:
According to the FICCI KPMG Report 2018, ad spends slowed down for three to seven months across different segments of the M&E sector for the management of inventories due to the implementation of GST in July 2017. Only due to IPL and FIFA World Cup, the growth rate of the industry was witnessed in 2018 first half.
According to Zee Unimedia COO Ashish Sehgal, the industry was impacted by GST in 2017, but there was good growth due to IPL. “From an advertising point of view, IPL itself has grown 20-25 per cent compared to last year. And this big money of the quarter will impact the whole of TV industry.”
Rohit Gupta, President, Network Sales and International Business, Sony Pictures Networks India, said: “Q1 did really well and it looks like the industry is back now. At least for us, at Sony, we had a good growth rate. The two big ticket events for us were FIFA World Cup 2018 and India England Tour. These two were fully sold out. Therefore, it's been a good start to the year. With elections coming, it seems we will have a good year after a couple of years. The industry has recovered from demonetization and GST; the spends are happening, the focus on rural is there and also IPL did well. Hence, all together, it's a good start for the industry,”
The year 2017 wasn't favourable for the radio industry as its advertisements felt the combined jolt of RERA and GST along with demonetisation. Only with the beginning of the first quarter this year, the industry started to rebound.
The industry also wants radio to come under 5 per cent GST slab instead of 18 per cent to boost advertising.
Latest FICCI- EY report:
While demonetisation and GST affected advertising across sectors, the industry feels that the digitisation has helped subscription revenue to grow at a faster clip in 2017. As per report, riding the digital wave, the Indian Media & Entertainment (M&E) sector has seen a 13% growth in the last year to reach `1.5 trillion.
The report tilted as, ‘Reimagining India’s M&E sector’, forecasts that given the current growth trajectory, the sector is expected to cross `2 trillion by 2020 at a CAGR of 11.6%. The media and entertainment (M&E) sector thus continues to grow at faster rate than the GDP growth rate, reflecting the growing disposable income led by stable economic growth and changing demographics. The report adds that the growth in digital demonstrated that advertising budgets are in line with the changing content consumption patterns.
According to Ashish Pherwani, Partner EY India, “Growth in 2017 was led by the digital, film & animation & VFX segments. We expect sectors like digital and gaming to grow between 2 to 3 times by 2020.”
But the deal activity in the traditional media segments was slower, partially attributed to challenges faced by the advertising segments of the industry due to demonetisation and GST. Overall, the number of transactions in the M&E sector decreased from 56 deals in 2016 to 40 deals in 2017. Further, the total deal value was also lower at $1,261 million in 2017 compared to $2,863 million in 2016.
GST & Indian AdEx:
The Indian AdEx (ad expenditure) has undergone fluctuations since the introduction of GST; the worst shocks were seen in 2017 due to demonetisation and GST. As per FICCI-KPMG India Media & Entertainment industry report 2017, demonetisation led to a decline in consumption across sectors such as FMCG, auto, banking, financial services & insurance and real estate. This led to a pullback in discretionary spends in marketing and advertising, the repercussions of which were felt across the M&E industry.
Navin Khemka, managing partner, Wavemaker India, said, “The GST quarter saw a negative impact with most brands having a very cautious approach, as inventories were piled up with traders and retailers due to compliance with the new system.”
Cable TV wants revision of GST:
In January this year, cable television operators of West Bengal had sought to revise the Goods and Services Tax (GST) to five per cent from 18 per cent.
Cable TV Equipments Traders & Manufacturers Association (CTMA, said: “Cable television services are essential services and should not have 18 per cent GST which is in effect at present.”
In April 2018, West Bengal Chief Minister, Mamta Banerjee had set up a cable network advisory committee with Firhad Hakim, the state Urban Development and Municipal Affairs minister as its chair-person. The other member of the committee included representatives of broadcasters and cable operators. The committee’s mandate was to press for the demand of lowering GST, among other things.
Impact on DTH:
On the impact of GST on DTH sector, Jawahar Goel, CMD, Dish TV India Limited, said: "Dish TV has successfully transitioned to the GST regime. The DTH industry has seen a reduction in the overall indirect tax rates under GST. Though benefits due to the unified tax may take some time to reflect in numbers, the sheer check on tax avoidance in the informal cable sector should be immediately helpful in reducing irrational competition from cable. The Harmonized System Nomenclature (HSN) codes, unit and rate which need to be separately declared in the invoice in value chain right from the broadcasters to the local cable operator, under GST will give a logical and systematic classification to goods and services thus reducing the possibility of mis-declaration by businesses.”
Abhishek Rastogi, Partner in the Indirect Tax practice group in Khaitan & Co, Mumbai, sums it up beautifully: “GST has been a major transition in the Indian tax framework. Naturally, all the proclaimed benefits cannot be perceived overnight. As GST matures, it is expected that with the Government’s pro-active measures and industry’s active participation will surely make it a success story for India in the times to come.”
But the government needs to listen to the demands of cable TV operators as they are the people who had shed their sweat to build this industry and now are under big threat from new innovations and large business groups. They are fighting the battle for their survival, and needs government’s support to survive.