Finance Minister Pranab Mukherjee delivered a budget that brought some cheer and some additional taxation to the media sector. Key points:

1) Fringe Benefit Tax abolished: This was a key demand from many players in contentSutra’s Wishlist For The New I&B Minister. Many key overheads for media houses, such as travel, come under Fringe Benefit Tax. The proposed introduction of a Goods and Services Taxes (GST) regime is seen as a positive for all media companies. 

2) Excise duty of 5% on Set Top Boxes (STBs) reintroduced: The government had exempted STBs from duty last year to encourage digitization. Most of the STBs used by the DTH and digital cable industry are imported from China and Korea.

3) Increased DAVP rates to stay: During the height of economic slowdown and ahead of general elections, the government had increased discounted ad rates paid by various government agencies by 10%, in addition to discontinuing a 15% agency commission. These waivers will stay for another six months.

Reactions:

Anjan Mitra, Executive Director-India, Cable and Satellite Broadcasting Association of Asia (CASBAA):

“Any additional tax imposed on (import of) set-top boxes (STBs) is like taking a step back. Imposition of an additional 5% duty on STBs will hit the spread and process of digitalization in India, which had been flagged by TRAI, MIB and the PMO as a priority area. With boxes becoming likely to become costlier, the consumer ultimately will have to shell out more.”

Salil Kumar, COO, Dish TV India Ltd:

“The additional burden of 5% tax on STB will hinder the growth and will discourage the DTH industry from expanding business; this tax hike will be passed on the customers. Although we do welcome the removal of FBT (NYSE: BT) and introduction of GST (Goods & services tax), which will provide some relief to DTH industry from multiple taxes from Centre & the states.”

Anand Shah, analyst, Angel Broking:

“THE Budget is overall positive for the Media industry, particularly Print Media and marginally negative for Distribution companies. The six month extension of stimuli package for Print Media (10% hike in DAVP rates and waiver of 15% agency commission) is positive for Print Media companies. However, a 5% hike in customs duty on Set Top Boxes comes as a marginal negative for Distribution companies (Dish TV, WWIL). Finally, a complete exemption from FBT, currently at 20%, and confirmation of implementation of GST by April 2010 will be of a great boost for both Print and Broadcasting sector, apart from the Film Industry.” 

Amit Kumar, analyst, Kotak Securities:

“Negative for TV distribution. The basic customs duty rate on digital STBs was set at 5%. We note that nearly the entire consumption of STBs in India is imported. This would be negative for companies such as DITV (LSE: ITV), WWIL, HVL given (1) pass through of higher STB cost to consumers will result in lower volumes and (2) absorption of incremental STB cost will impact already stretched financials.”