Union Budget 2021: Increase FDI cap to digital media from 26% to 49% to create level playing area, attract foreign investment – India News , Firstpost

The digital media house has been attracting substantial foreign investments within the previous couple of years and has been creating vital employment alternatives in India.

A newsroom. Image courtesy Mephisto 97.6/Wikimedia Commons

As India Inc. takes small however centered steps in the direction of the restoration of financial normalcy after two consecutive quarters of financial contraction due to the shock brought on by the COVID-19 pandemic, essentially the most extreme one after the Spanish Flu in 1918-1919, the expectations from Budget 2021 are at their peak.

Finance Minister Nirmala Sitharaman has set the tone for these expectations by describing Budget 2021 as a by no means earlier than occasion – ‘100 years of India wouldn't have seen a Budget being made post-pandemic like this’.

The media and leisure (M&E) sector is a major a part of the financial system each when it comes to its dimension and employment technology. During FY 2020, the sector grew at a slower price of seven.four p.c to attain Rs 1.75 trillion as in contrast to a development price of 13.2 p.c in FY19.

The financial slowdown prior to the COVID-19 outbreak had negatively impacted the M&E sector with conventional modes of print and tv witnessing a considerable decline whereas new age media digital media, OTTs and the gaming phase continued to develop.

The pandemic is probably going to lead to a contraction by up to 20 p.c in FY 2021 within the sector with the standard segments, viz. tv, print, cinemas persevering with to witness a steep decline in companies in contrast to
know-how-primarily based New Age digital media platforms, OTTs, gaming and so on.

The Indian M&E sector nonetheless derives a good portion of its revenues from promoting, although the pandemic has resulted in quicker adoption of subscription fashions. The development within the M&E sector relies upon invariably on the general development within the financial system together with the important thing sectors resembling FMCG, actual property, monetary companies, automotive and e-commerce, which have a tendency to contribute considerably in the direction of the expansion in promoting.

Budget 2021 ought to give attention to offering a fast and instant injection of stimulus and undertake reforms to enhance consumption within the Indian financial system.

From a tax perspective, within the latest previous, the federal government has come out with numerous reforms, each on direct tax and oblique tax, to present stimulus to the financial system together with the M&E Sector. However, given the disruption brought on by
COVID-19 and inexperienced shoots being witnessed within the New Age digital media phase of the M&E sector, listed below are a few of the key expectations from Budget 2021:

Increase FDI limits

The digital media house has been attracting substantial foreign investments within the previous couple of years and has been creating vital employment alternatives in India.

The authorities had introduced an FDI restrict of 26 p.c within the digital media sector together with OTTs. It ought to contemplate rising the FDI restrict to 49 p.c as this may create a level playing area with firms working within the information broadcasting phase and attract higher foreign investment.

Amend Section 72A of I-T Act

The put up-pandemic financial setting will witness numerous consolidation in completely different segments of the M&E sector. Under the current provisions of the I-T Act, in case of amalgamation of firms, losses of the amalgamating firm are allowed to be carried ahead to the amalgamated firm solely to a sure class of enterprise actions. Section 72A of the I-T Act must be amended to embrace M&E firms within the checklist of enterprise actions.

Benefits to startups

The New Age digital media, gaming, VFX and OTTs segments are attracting quite a bit of younger minds and expertise in India. Given the immense potential these segments present, the I-T Act must be amended to prolong the concessions below Section 80-IAC past 1 April, 2021. In addition, the federal government had supplied registered startups with an exemption from ‘Angel tax’ below Section 56(2)(viib)of the I-T Act in case amongst different situations the paid-up share capital and share premium of such startups is lower than Rs 25 crore. Given the numerous capital raised by startups engaged in digital media, the VFX and the gaming phase, the federal government ought to enhance this restrict manifold.

It must also have a look at the lengthy-standing demand of the M&E sector to defer the taxation of ESOPs, which represent a good portion of worker compensation, to train as opposed to vesting.

The author is Partner M&A and PE Tax, KPMG in India.

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