Union Budget Negative For Digital Media Industry

The Union Budget 2007-08 has disappointed the digital media industry. First, the telecom content industry has been brought under the service tax net. I think it could be a bit too early to tax the industry since it’s really at a nascent stage. The content firms are already reeling under a lower share of revenues from telecom companies (at an unfavourable 20:80 ratio). Since a viable economic model is yet to be discovered for the content business, this step would be a set back for the industry.
Second, venture capital firms registered with Securities Exchange Board of India have enjoyed pass-through benefits (income tax and dividend tax benefits) so far. Now that has been limited only to investments in certain sectors like biotech, nanotechnology, research in new chemical entities etc. What is missing is the highly nascent internet industry. Says R Ramraj, former CEO, Sify Ltd, “It is not right to dictate where pass-through facility is available and where not. A lot of venture capital investment has gone into internet related businesses. Internet ventures are not in the list of industries mentioned by the finance minister in his budget speech.”
The finance minister has also not heeded the demand for service tax exemption for the internet access business. Raju Vegesna, chairman and CEO, Sify Ltd, said, “It is a little disappointing to see that, despite the need to ensure more citizens have access to the Internet to participate in e-governance, cyber cafes and Internet access services have not been made exempt from service tax. Such a measure would have given a boost to the government’s efforts to rapidly increase Internet penetration and use, as well as contributed to the success of the e-governance services being rolled out.”
All in all, there is nothing in the budget for the digital media industry.

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