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United Budget 2021: Raise FDI cap on digital media from 26% to 49% to create fair competition and attract foreign investment

Digital media spaces have attracted significant foreign investment over the past few years, creating significant employment opportunities in India.

Newsroom. Image courtesy of Mephisto 97.6 / Wikimedia Commons

India Inc. has taken small but focused steps to restore economic normality after the economy has shrunk for the second straight quarter due to the shock caused by: COVID-19 (new coronavirus infection) (# If there is no character limit, add parentheses when it first appears The pandemic is the most serious after the Spanish flu of 1918-1919, and expectations from budget 2021 have peaked.

Finance Minister Nirmala Sitharaman set the direction for these expectations by describing the 2021 budget as an unprecedented event.

The media and entertainment (M & amp; E) sector is an important part of the economy, both in terms of size and job creation. During 2020, the sector grew at a slow growth rate of 7.4%, reaching Rs. 1.75 trillion compared to 13.2% growth in 2019.

Economic slowdown before COVID-19 (new coronavirus infection) (# If there is no character limit, add parentheses when it first appears The outbreak had a negative impact on the M & E sector, with a significant decline in traditional print and television modes, but New Age Media’s digital media, OTT, and gaming segments continued to grow.

The pandemic could lead to a reduction of up to 20% in the traditional segment sector in 2021.Television, printed matter and cinema continue to witness a sharp decline in business in comparison
Technology-based New Age digital media platforms, OTT, games and more.

India’s M & E sector still accounts for a significant portion of advertising revenue, but pandemics are accelerating the adoption of subscription models. Growth in the M & E sector has always been dependent on the growth of the economy as a whole, including key sectors such as FMCG, real estate, financial services, automotive and e-commerce, which tend to contribute significantly to the growth of advertising.

Budget 2021 needs to undertake reforms to increase consumption in the Indian economy, focusing on providing a quick and immediate infusion of stimulus.

From a tax perspective, the government recently announced various reforms in both direct and indirect taxes to stimulate the economy, including the M & E sector.But given the confusion caused by
COVID-19 (new coronavirus infection) (# If there is no character limit, add parentheses when it first appears The green shoot witnessed in the New Age digital media segment of the M & E sector is part of key expectations from budget 2021.

Increase FDI limits

Digital media spaces have attracted significant foreign investment over the past few years, creating significant employment opportunities in India.

The government has announced a 26% FDI limit in the digital media sector, including OTT. You should consider raising the FDI limit to 49%. This creates fair competitive conditions with companies doing business in the news broadcast segment and attracts more foreign investment.

Amend Section 72A of IT Law

In the post-pandemic economic environment, there is a lot of consolidation in different segments of the M & E sector. Under current IT law provisions, in the case of a merger of companies, the loss of the merged company can only be carried forward to the merged company for certain types of business activities. Section 72A of IT Law needs to be amended to include M & E companies in the list of business activities.

Benefits for startups

New Age’s digital media, gaming, VFX and OTT segments attract many young people and talents in India. Given the immense potential offered by these segments, IT legislation should be amended to extend concessions under Section 80-IAC beyond April 1, 2021. In addition, the Government has registered startups in Section 56 (2) (viib), among other conditions, if the paid-in stock capital and stock premium of such startups is less than Rs 25. Given the large amount of capital raised by start-ups working in the digital media, VFX, and gaming segments, governments need to increase the diversity of this limit.

We also need to look at the long-standing demand of the M & E sector to defer the exercise of ESOP taxation, which is an important part of employee compensation, rather than vesting.

The writers are Partner M & A and PE Tax, KPMG, India.

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United Budget 2021: Raise FDI cap on digital media from 26% to 49% to create fair competition and attract foreign investment

Source link United Budget 2021: Raise FDI cap on digital media from 26% to 49% to create fair competition and attract foreign investment

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