GST : Hope For Media Sector

It will be two months since the launch of the landmark Goods and Services Tax (GST). The first month of GST was smooth sailing and went by without any major hiccups. This was mainly due to the enterprising character of the Indian mind which found answers to many problems on-the-fly. The central government too, took some courageous decisions such as allowing exports even when new procedural requirements were not fully complied with, providing clarifications at a faster pace, using social media tools as well as print and electronic media to disseminate information, etc. The month of August however, changed this scenario with Indian businesses gathering speed in their operations. As businesses have started sailing full throttle, we are now seeing problems cropping up in GST implementation as more and more businesses are to file their first full-fledged return starting 1 September 2017.

Media sector

India is one of the highest spending and fastest growing advertising markets globally. However, in the recent past, the media sector has seen lower advertisement revenue due to weak business climate and companies catering directly to the retail segment offered more discounts to maintain market share and clear inventory before the implementation of the Goods & Services Tax (GST).

GST implementation is learnt to have affected advertisement spends by nearly 20-25 per cent in a major way, especially from sectors like FMCG and real estate. In calendar 2016, total advertising spend across all sectors in India stood at $8.18 billion and is estimated to reach $16.7 billion by 2020.

With the onset of the festive season, we may see good growth in retail advertisements, as companies are likely to spend more on advertisements and will make up for the shortfall in the first half of the calendar. With improved monsoon this year, the seventh Pay Commission award and other positive factors, consumer demand is expected to move up from here on, especially in rural India, which typically sees more sales and leads to advertising.

Industry majors believe a big leap in spending will come from players such as e-commerce, new players entering the food & beverages segments, banking & finance, automotive players, mobile companies and the government sector.

Since 2014, the Modi government has supported growth in the sector through taking various initiatives such as digitisation of the cable distribution sector to attract greater institutional funding, increasing FDI limit from 74 per cent to 100 per cent in cable and DTH satellite platforms besides other reforms such as ‘Digital India’, ‘Creation of Smart Cities’ and ‘Make in India’, to name a few.

As per DIPP, FDI flows in the information and broadcasting (I&B) sector (including print media) stood at $6.49 billion during April 2000 – March 2017 period.

Media in India is considered a sunrise sector of the economy and it is on the cusp of a strong phase of growth, backed by rising consumer demand and improving advertising revenues. Almost all media companies have undertaken several strategic growth and expansion initiatives across markets be it print, digital and radio platforms. Now, they have diverted their focus to ensuring implementation, consolidation and monetisation of these endeavours.

Revenues of the media sector are expected to improve on the back of lower inflation and lower interest rates. The sector is also expected to benefit more from the significant reform-led efforts by the Union government to encourage investment and improve the business climate. Notably, the recent launch and implementation of GST is expected to support growth, as the country gradually transforms to improved tax compliance, administration and ease of doing business, unifying the national market.

If data is to be believed, expenditure on advertising in India is expected to grow 12 per cent to Rs 61,100 crore (US$ 9.47 billion) in 2017. From the media space, one may consider investing in companies such as HT Media BSE 1.50 %, DB Corporation, TV18BSE -0.85 %, Zee Entertainment BSE 0.15 % and Dish TVBSE 0.75 % for the long term.

Government hope

Determined to keep the brisk pace of spending achieved in the initial months of the fiscal year, the Centre might look for avenues other than the budgeted to boost receipts as it sees shortfalls under some key revenue heads like the telecom spectrum and dividend from the RBI. Even though initial signs are that GST receipts will be robust and direct taxes too have got some post-demonetisation fillip, only eleven months’ GST receipts could be accounted for in the current year, finance secretary Ashok Lavasa told. Even as the GDP growth slowdown is posing another fiscal risk, he said the finance ministry will ensure that the budgeted fiscal deficit of 3.2% of the GDP for 2-17-18 is not breached.

In the pre-GST regime, excise and service taxes for any month were paid by the end of the same month, which meant all twelve months’ revenues were accounted for in the same financial year; however, under GST, revenue for a month will be accounted for in the subsequent month when the taxes are actually paid by the assesses. So, the GST revenue for the next March will reflect in 2018-19, instead of this year. “We have to make an assessment to see what will be the impact because of this,” Lavasa said, adding that accounting will self-correct from the next financial year. A month’s GST revenue is equal to roughly Rs 1 lakh crore, half of which the Centre can lay hands on.

Although the finance secretary hasn’t revealed the revenue areas being tapped to bridge any potential shortfall from budget estimate and keep the spending momentum which is crucial for the slowing economy largely deprived of private investments, more aggressive PSU privatisation, unlocking of government’s holdings in private firms held via SUUTI and monetisation of government land etc. are among the possible options. Of course, ONGC’s acquisition of majority stake HPCL will yield the government some Rs 28,000 crore or so, but this, sources said, was seen when the disinvestment target of Rs 72,500 crore was set.

The Reserve Bank of India has paid only half of Rs 58,000 crore dividend estimated for this year while telecom firms have pleaded difficulty in paying spectrum charges and license fees up to the budget  Rs 44,342 crore. Last year too, the Centre had to slash the spectrum-related revenues to Rs 78,700 crore from the original budget estimate of Rs 98,994 crore.  As reported by FE earlier, the government and the Reserve Bank of India are in talks to explore the possibility of the central bank transferring more dividend for 2017 than it has announced.  Earlier this month, the RBI sharply cut its annual dividend to the government to Rs 30,659 crore from Rs 58,000 crore budgeted by the Centre and about Rs 65,876 crore transferred in 2016. We have to see which are the (revenue) areas where there could be shortfalls and whether we can make these up from other sources,” Lavasa said.

The Centre’s spending was ahead of trend with 38% of the full year target of Rs 21.47 lakh crore, already spent in April-July. The ratio was about 33% in the corresponding periods of 2016-17 as well as in 2015-16. The front-loading of expenditure this year was mainly due to early passage of the budget, which gave many departments flexibility to spend on social and physical infrastructure. In April-July this year, the Centre’s major subsidies rose 42% year-on-year to about Rs 1.5 lakh crore while capital expenditure rose 33% to Rs 95,126 crore. Overall spending in the first four months of this year was at Rs 8.08 lakh crore, up 23% y-o-y. The Centre’s gross tax revenue in April-July this year stood at Rs 4.52 lakh crore, up 17% y-o-y, as against the required rate of 11.3% to meet the budget target of Rs 19.11 lakh crore. Net tax revenue to Center (after devolution to States) grew by 19%.

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