Tata Sky, the DTH joint venture between the

autos-to-software Tata group, Rupert Murdoch-controlled News Corporation

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and Temasek, the

Singapore government-controlled private equity major, said high tax rates have resulted in direct-to-home (DTH) satellite television service providers, having a subscriber base that is a fourth of that of cable operators, paying taxes to the government

coffers almost equivalent

to their cable industry

counterparts.

“On average revenue per user of Rs 200, we are paying taxes of as much as Rs 55 per head. We fail to understand what is the service we provide which invites payment of entertainment tax,” Harit Nagpal, managing director & CEO of Tata Sky told Financial Chronicle.

He estimates that between a fourth and a third of the industry’s gross revenues go into taxes such as entertainment duty levied by states on DTH service providers.

Rajesh Jain, executive director and head of media and entertainment practice at KPMG, said that legally, the rate of entertainment tax payable by DTH service providers and cable television operators is the same but it largely depends on what is ultimately declared by the cable operators.

Cable operators tend to under-declare their subscribers and hence their revenues. As a result they have a much lesser tax burden on them.

While entertainment tax rates differ widely across states, DTH firms are unable to discriminate between subscribers and have to charge uniform prices pressuring their margins.

“While I agree that high entertainment tax, which varies from state to state, has impacted the profitability of the DTH operators in India, the industry continues to grow rapidly, largely because of the stiff competition,” said Jain.

The DTH industry is currently deep in the throes of losses. The industry’s largest player Zee Group’s Dish TV India posted a consolidated loss after tax of Rs 197.86 crore on total income of Rs 1,436.66 crore for the year ended March 2011.

Documents obtained by FC show that Tata Sky, one of the leaders by revenue market share, posted a loss of Rs 626.61 crore on income of Rs 1,110.78 crore for the financial year 2009-2010. Nagpal declined to provide figures for

2010-2011 at the closely held company.

Research firm Media Partners Asia estimates that the subscriber acquisition cost of DTH providers in India at $50-60 (Rs 2,240-2,688) each is more than the $40 (Rs 1,792) annualised average revenue per user.

According to Jain, till the time the government implements the proposed goods and services tax (GST), the industry is unlikely to see any relief from taxes.

“However, this is an issue where there has to be consensus among all states to include entertainment tax in GST, ” he said.

While the industry is campaigning for rationalisation of entertainment tax, it is unlikely that the state governments will forego the levy.

A Media Partners Asia report said that the active DTH subscriber base as of end 2010 stood at 23 million out of the total pay TV subscriber base of 114.4 million.

The research firm estimates that the DTH

market generated sales of $800 million (Rs 3,584 crore), which were 20 per cent of the cable distribution sector.