Meeting of State Information and Broadcasting Ministers
November 7, 2001, New Delhi.

Presentation on Uniform Entertainment Duty for the Indian Cable Industry by Mr Ashok Mansukhani, Chairman, Sub-committee on Cable Industry, Entertainment Committee, FICCI, New Delhi.

Introduction

The National Readership Survey 2001 reveals that cable is currently available in 33 million homes. The reach of television in urban areas is 84.7 % in urban areas/towns with population of one million and above and 32.7 % in rural areas. The Survey further reveals that in urban areas, a saturation point has almost been reached. Most of the growth in the last one-year has been in semi- urban and rural areas.

A key factor to note is that while the growth in cable industry has been only 7.1% in the last one year, the potential for growth remains high. It must be kept in mind that the total number of television homes is currently estimated at 70 million while the total number of cable homes is 33 million. This means that there are another 37 million homes in the target reach of the cable industry in terms of current estimates.

Viewers in metropolitan cities have the potential to receive approximately 150 TV channels from at least 75 satellites. The importance of television to inform, educate and entertain cannot be overstressed in these troubled times.

For the first five years of the last decade, the cable industry mushroomed and indeed thrived in a non- regulatory atmosphere. In 1995,the Cable Network Regulation Act was brought in to regulate the industry. One immediate impact was the entry of large companies, which consolidated the small operators into becoming franchisees/associates of the multi system operators (MSOs). This led to closure of many customer service centers known as head ends as small operators began to take service from the MSOs. Even so, today there are an estimated 40000 cable operators.

A cable business needs to do only be registered at the local post office. The rest is a matter of capturing the subscriber and retaining him.

Levy of Entertainment Duty

State governments soon recognized the growth of the cable industry and began to tax the cable subscriber through the cable operator. Each state used a different yardstick- some taxed the declared number of cable subscribers, others taxed the cable operators and some taxed the head ends. The rates too varied from Rs. 4 per subscriber to Rs. 30 per subscriber.

In most states the entertainment duty officer or the commercial taxes officer administers the entertainment duty on cable industry. Though as in all revenue departments, inspectors are utilized to verify and mop up additional entertainment taxes, there is no systematic database available with the state governments or even the cable industry itself. Post office registration, though compulsory, is not enforced by the states because it forms part of central legislation and the post office has nothing to do with the cable industry. In such a scenario, the concern of the state governments to bring the entire 33 million base of cable subscribers is naturally a Herculean task.

Pay Channels

There is one more factor, which should be kept in mind. In the past 5 years, more and more channels have begun to charge subscribers for the content supplied. Free-to-air channels have become pay channels. Today all the major broadcasters like Star, Sony, Zee and even some Doordarshan channels have become pay channels.

The average cable subscriber in India pays approximately Rs. 100 to receive between 60-70 channels. With all major broadcasters turning pay, a normal operator has nothing left over to pay for entertainment duty or his own operating expenses. Hence there is widespread under declaration to the entertainment duty authorities and the pay channels.

An interesting concept being tried out in India by broadcasters is to “bundle” strong and weak channels together and force the operator to provide channels, which are not popular. This is a ruse employed by all broadcasters and leads to resentment of the customer and even the cable operator.

Conditional Access Systems

In August 2001, the central government has taken a decision that all pay channels would have to go through the conditional access system by which the customer will decide which channels to see or not see. The government intends to also make it compulsory for all cable channels to be available through conditional access system to obviate piracy concerns of the film industry. This will require legislative amendment of the Cable Act but will be a revolutionary step forward in regulating the industry.

It will also help the state governments to have a better record of cable subscribers to tax them equitably. The cable industry hopes that this will also bring some order in the chaotic pay channel environment, as subscribers will only pay for what they see.

Conclusion

In the emerging 2002 scenario, a series of suggestions are given below for kind consideration of the state governments and the central government:

• Current entertainment duty rates are not uniform and vary from state to state.
• Basis of entertainment duty differs from state to state. Some are as per subscriber, some as per operator and some as per head end.
  
• Cable operators are agents of the state government. The customers are liable for payment of entertainment duty yet the law makes the operator responsible and not the customer.
  
• There is no updated database or mechanism to ensure that all subscribers are covered by the relevant entertainment duty leviable.
  
• There is need to move towards a uniform entertainment duty which fulfills legislative intent but is moderate to be acceptable to the customer/subscriber.
  
• In fact the cable industry is an infrastructure information provider and does not create any content on which it is currently charged entertainment duty. The broadcasters create or source content and earn crores of rupees from both paying subscribers and advertisers.
  
• There is a strong case for changing or enlarging the incidence of entertainment duty to broadcasters.
  
• This will reduce the burden on the customer.
  
• The cable industry is willing to assist the government in collecting entertainment duty if it is given some mandatory power to do so like is done for service taxes in some cases.
  
• The cable industry will welcome legislation to ensure full declaration of customer base to MSOs and large operators by sub- operators. In turn the entire 33 million subscriber base could be taxed in two forms:
  
• A flat simple rate of Rs. 10 for subscribers availing free to air channels.
  
• A per pay channel rate of Rs 2 for each pay channel availed by the subscriber.
  
• This would be an equitable and acceptable way of enhancing collection of entertainment duty from the cable subscribers.