How Budget 2018 impacts the Media & Entertainment sector: EY analysis

Post the presentation of the Union Budget 2018 by Finance Minister Arun Jaitley on February 1, Ernst & Young has issued Budget alerts encapsulating the key tax, policy and sectoral announcements and their impact. 

The Budget 2018 is predicated on a real growth assumption of about 7.3 per cent and underlying inflation assumption of 4 per cent. According to EY, these assumptions appear to be realistic in light of the recent growth forecasts by the International Monetary Fund and the World Bank at 7.4 per cent and 7.3 per cent, respectively. Budgetary priorities support agriculture and rural sectors, health and education as well as infrastructure. These priorities would also support overall growth in the economy.

The fiscal deficit target of 3.2 per cent of the GDP for FY18 and 3 per cent of the GDP for FY19 have been postponed. The revised fiscal deficit estimate for FY18 (RE) is 3.5 per cent of the GDP. This slippage is largely due to the excess of revenue expenditure over the corresponding budgeted amount of about 60 basis points of GDP. Half of this slippage is made up by a cut in capital expenditure and increases in net tax revenues and disinvestment proceeds. This has also led to a slippage of 30 basis points for FY19, for which the targeted fiscal deficit is 3.3 per cent of the GDP. According to EY, the point of concern is that the slippage in revenue deficit to GDP ratio of 1 per cent point in FY18 (RE) is more than the slippage in the fiscal deficit. 

The Budget 2018 has accepted the recommendations of the Fiscal Responsibility and Budget Management Committee, whereby the main policy target would be the Centre’s debt-GDP ratio, which is to be brought down to 40 per cent from its current level of about 50 per cent. 

Key tax takeaways for the Media & Entertainment sector: 

“Business connection” will now also include any business activities carried through a person who, acting on behalf of the non-resident, habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by the non-resident. This amendment is aimed at aligning the domestic law definition with the tax treaties, which will stand modified by MLI so that the domestic law’s narrow definition does not render the tax treaties ineffective. 

The scope of nexus-based business presence rules have been amended to provide that ‘significant economic presence’ in India (irrespective of the physical activities of the non-resident in India) will also constitute “business connection”. 

Significant economic presence shall mean to include:

  • Transactions of goods, services or property (including downloading of data or software) by a non-resident in India
  • Non-residents involved in systematic and continuous soliciting of business activities or engaging with users in India
  • Threshold for the number of transactions and number of users shall be prescribed in the due course
  • Attribution shall be restricted to such aforesaid transactions and/ or business activities/ users in India

The list of services subjected to Equalisation levy provisions remains unchanged

Exemption granted from the new introduced SWS on import of prepared unrecorded media for sound recording or similar recording (excluding cards incorporating a magnetic stripe) as well as recorded media for reproducing phenomena other than sound or image


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