Television broadcasters are truly delighted at the passage of the Central Goods and Services Tax (CGST) Bill, the Integrated GST (IGST) Bill, the Compensation GST Bill and the Union Territory GST Bill 2017. They sincerely appreciate the commendable work done by finance minister Arun Jaitley and the members of the GST Council. With this, one of the biggest taxation reforms since Independence is all set to transform into a new system of indirect taxation that will not only boost GDP growth but will also create a uniform market in this country.
The Indian Broadcasting Foundation (IBF), the representative body of television broadcasters, has urged the government to categorize television services as a mass consumption service with a goods and services tax (GST) rate of 5% . In a statement, the foundation said that the sector is unprepared to take a tax hike under the new GST regime. “It is important that government recognizes TV services which have evolved over the years as a product/service of mass consumption to be classified and categorized under the item of mass consumption having a GST rate of 5% so that it becomes affordable to masses,” said IBF, in the statement. This request comes as a part of IBF’s efforts to bring television and radio services at par with the print sector as it believes that television services have become an integral part of everyday life of the masses and “the general economic downturn globally has impacted the sector extensively”.
GST will help businesses
Yes, broadcasters believe that GST will help businesses to operate more efficiently. There are, however, a few contentious issues that television broadcasters are likely to face if not addressed before the rollout deadline on July 1. The first problematic issue relates to the clarity on the ‘location of the supplier of service’ from where a taxable supply is made.
In TV broadcasting service, the entire chain of activity is carried out from more than one state, each one being part of an integral chain of events that completes the service. For example, the programme content and commercial advertisements, including the related scheduling activities, are usually done at a central location at one place, whereas the channel playout, uplinking, etc, happen at another facility of a third-party service provider. The head-ends through which the channel feed is received are located across the country.
The present GST law is ambiguous and it is unclear as to from where the taxable supply is going to be made. In any event, GST, being destination-based taxation, the final beneficiary of taxes would remain the states where the service recipient is located, irrespective of the location of supplier.
To remove the ambiguity, one of the best possible options for the government would be to consider the location of supplier of service as the place of supply from where invoices are raised. Further, the rules relating to the term ‘place of business’ should be appropriately prescribed to determine place of business in unambiguous manner. In the event it is not prescribed, it would lead to protracted litigation.
Another major issue relates to state-wise registration: The GST framework mandates state-wise registration for CGST, State GST (SGST) and IGST. State-wise registration will make it impossible to comply with certainty on account of the following ambiguities: Difficulty in ascertaining place from where service is provided: Given the seamless nature of service, it is impossible to ascertain one place of provision of service. Ambiguities will lead to significant overlapping demands with several states seeking to collect tax on the same revenue.
Payment of GST on stock transfer services: The present GST framework appears to require any stock transfer of services from one registration to another registration of the same entity to become liable to being taxed. In a service situation, it is impossible to identify the time of such transfer. Besides, the valuation for such a transfer price is not possible with television channels.
Cascading impact: The GST framework seems to mandate the collation of credits per registration. However, tax is to be paid from locations from where services are deemed to be provided. This is likely to trigger credit blockages and result in the cascading of taxes without any purpose.
Compliance nightmare: Multiple audit and assessments by overlapping jurisdictions will result in a huge increase in litigations. Compliance effort is likely to rise 400-500 times. In order to mitigate the cascading impact of taxes, a Single Pan India (SPI) registration should be allowed to the service provider (broadcaster). Also, the system should ensure that credits are collated at the centrally registered premise and such credits are allowed to be utilised or set off against the consolidated GST output liability arising at the centrally registered premise. Once these issues are addressed during the ongoing consultations and council meetings, it will not only boost the morale of the entire television broadcast industry but it will also send a positive signal in the minds of all existing and potential investors in the media and entertainment space.