Duty on STBs to hit cable operators

Budget provisions

• The budget proposes to levy basic customs duty of 5% on Set Top Boxes.
• The budget proposes to abolish FBT.
• The budget proposes to increase the MAT limit from 10% to 15% and extend the period allowed to carry forward the tax credit under MAT from 7 years to 10 years.
• The budget proposes to exempt the value attributable to the transfer of the right to use packaged software from excise duty and CVD.

Industry Expectations

On the service tax front, parity be made between broadcasters and print media by abolishing service tax on broadcaster similar to that of print media - not fulfilled.

Budget impact

The levy of basic customs duty on STBs of 5% would negatively impact the DTH/Cable operators as this would increase their customer acquisition cost.

The abolition of FBT would be beneficial to the Entertainment industry mainly the television segment where there is a lot of impetus on employees.

The cut in customs duty from 10% to 5% on LCD panels for manufacture of LCD televisions would have a marginal benefit on the sector with TVs and Plasma TVs becoming marginally cheaper on pass on of benefit to consumers.

The exemption of the value of right to use packaged software would be beneficial to the gaming industry.

The increase in the MAT rate from 10% to 15% and the extension of the carry forward period from 7 years to 10 years would be earnings neutral (current tax would increase compensated by increase in deferred tax asset) and cash flow negative. The Company would have to pay tax at higher MAT rate but would get credit for the same in the future.

Change in the tax structure for Individuals or Hindu Undivided families leading to lower incidence would have the biggest benefit to the media & entertainment sector with the purchasing power of consumers increasing.

Stocks to watch

UTV Software, Zee Entertainment

Negative Impact

Dish TV, WWIL

Outlook

On an overall basis, the budget was neutral for the Entertainment Sector. The biggest negative was imposition of duty on STBs impacting the distribution platforms. The biggest benefit of the budget has been the lowering of tax incidence on the individuals and Hindu undivided families, which would mean higher spending power.