MUMBAI: The Union Budget 2010-11, which proposed an additional 10.30% service tax on transfer of Intellectual Property Rights (IPR) for film, music and gaming software imported on digital media for duplication, can be a major cause of concern for the industry.

The levy of this tax would mean that all revenues generated out of transfer of IPR would be subject to service tax, in addition to VAT (value added tax), which IP owners currently pay.

Speaking to Businessofcinema.com on the implications of the same, Prakash Suthar – senior consultant in VAT and service tax law – says, "The film industry levy should strongly oppose to the levy of this service tax. This will lead to a dual taxation structure comprising the State VAT law and the Service Tax law, which will be hard on the pocket of film producers and music companies."

Highlighting the plight of the producers, Vinod Chopra Films executive producer Anil Davda adds, "The levy of this additional tax is going to harm the film industry as a whole. Only producers who are making a profit can afford it. Almost 80 per cent of filmmakers in the industry are facing losses in production today. How will they be able to bear the burden of this additional tax? If the Bill for the same does get greenlit in the coming months, it is going to be very discouraging for the film industry."

On a positive note, the Union Budget proposed to rationalize the differential custom duty structure for importing digital masters of films for duplication or distribution in electronic medium and in cinematographic film. Henceforth custom duty would be charged only on the value of the carrier medium. This means that importing audio – visual content from abroad will become relatively cheaper.

Commenting on this, Motion Picture Dist Association (India) managing director Rajiv Dalal says, "We are pleased with the Finance Ministry’s decision to address the film industry’s concerns over customs taxation on the import of DVD masters. Charging customs duties on DVD Masters based on carrier medium instead of transactional value will allow for greater importation transparency as well as increased foreign direct investment into the Indian film and television sector."

However, the cause of concern among the film fraternity currently is be the proposed service tax levied on IPR. If the Bill is passed, it is likely to have negative implications on the overall health of the film industry.