Direct-to-Home (DTH) is a technology wherein various TV channels are directly delivered at the subscribers' premises through satellite in a digital form, thus providing crystal clear picture quality along with various other benefits such as Movie-on-Demand, Electronic Programming Guide, Gaming etc to subscribers. The subscribers are required to install certain equipments such as Dish Antennae, LNB & Set Top Box (DTH equipments) to receive the DTH signals. The license for DTH service is granted by Central Government u/s 4 of Indian Telegraph Act, 1885.

One of the top priorities of the Government is to bring digitalization in the media content distribution sector. DTH is an important tool to drive digitalization and to penetrate into the areas where the cable TV has not yet reached. There are far flung rural and remote areas where the dwelling pattern is not clustered and Cable TV in these areas is unviable. DTH being a satellite driven technology, because of its wider reach can service these areas and thus the people living in those places, can also have access to satellite television. Even the people living in hilly areas and defence personnel deployed at high altitudes where cable service cannot reach, are availing the DTH services and taking benefit of DTH operations.

Similarly the Cable Industry is now gearing up for the digitalisaiton . The MIB has circulated a Sunset date for the analogue transmission on the cable, this will give an opportunity to the viewers to access much more number of channels, this will also give an opportunity ot them to pay for what they wish to watch.

However today the Cable and DTH sector is reeling under double taxation and thus if this anomaly of the double taxation is not corrected then the situation is going to get worse and the digitilsation will remain a dream and will not take place.

The simple economics of the business are that today Cable TV services are taxed as under :

Service Tax : 10% of the subscription amount

Entertainment Tax : on average 30% of the subscription amount

Customs Duty on Set Top Boxes : 5% of the Assessable value Customs Duty

Lack of Readiness: It is known fact that manufacturing capabilities in the Industry today are very inadequate. Only 20% of the requirement of the Set Top Boxes for the DTH sector is met by the Indigenous manufacturing. Still a Customs Duty of 5% has been levied on the Set Top Boxes, It is worthwhile to mention here that TRAI has also recommended from time to time that Set Top Boxes should be exempted from the Customs Duty.

Local manufacturers of STB are not in a position to supply STBs at a competitive price to meet the initial demand of the industry. The manufacturers admit that it takes at-least one and a half year to develop the Set Top Box. Videocon which has the facility to manufacture the STB for their captive use, took this much time to develop the box.

Till date no Indigenous company has given any concrete offer for the supply of the STB to any service provider and this fact has not been denied by the apex body of electronic manufacturers like CEAMA. Till such time that the local market can provide sufficient quantity of STBs at competitive price, DTH operators will have to rely on imports.

Levying of custom duty on STBs will compromise India's objective of digitalization at the cost of incentivizing local manufacturers and burdening the DTH industry, which it has to further subsidize.

It is important to understand that the STB has software having a critical role in the working of the STB and the manufacturers have to develop the capability for the same. At present they will only be able to assemble the imported components. Nearly 85% of components and chips will have to be imported from outside India.

Industry Subsidizing boxes : DTH and Cable industry is already heavily subsidizing the STB for new customers to enable them take up services at a minimal cost and this Customs duty on the STB will be detrimental to provide the subsidy to the consumers proving counter-productive to the revenue growth in the long run.

However, at present the sector is reeling under the burden of multiple taxes which are acting as a major impediment to its growth. To take the Cable and DTH industry on the growth path along with growth of the broadcasting sector as a whole, which is vital for the growth and development of the country, we need to rationalize taxes immediately.

Current Tax Regime and Digitalisation 2010 : Taxes burden on services is up to 40.3% and on equipment used for providing/availing services is up to 33.24%.

Taxes on equipment deter consumers to acquire DTH services as entry cost becomes very high making it difficult for DTH industry to survive.

In order to provide the impetus to the digitalization and promote the growth in the Distrbution platforms like Cable, DTH, IPTV, HITS etc. the following is recommended.

• Rationalization of the multiple levies currently being imposed on the sector.

• Set Top Boxes may be allowed to be imported as duty free till the FY 2014 which is the sunset date for the digitalisaiton to happen across the country.

• The Addressable Digital Cable TV, DTH, IPTV, HITS should be exempted from the levy of the service tax till FY 2014.

• For the time being, Entertainment tax on the addressable digital services like Addressable digital cable, DTH, IPTV , HITS may not be levied as they are likely to be subsumed in the GST and the states who have levied may reconsider the same.

• At present both Service tax (Central levy) and VAT (State levy) are being levied on rental of STB and other Consumer Premises Equipment (CPE) The imposition of VAT on rental of CPE which are mere enabling devices for availing the service, in fact is nothing but tax on 'Service'. This should also be reconsidered till the implementation of the GST where these are likely to subsumed.