Media - Madras HC stays e-tax on DTH :: Edelweiss,

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In a move which will boost DTH operators in Tamil Nadu, the Madras High Court has stayed the entertainment tax (e-tax) levied on DTH services in the state. The Tamil Nadu government had passed a bill levying 30% tax on DTH operators effective September 27, 2011. Dish TV had filed a petition in the Tamil Nadu High Court challenging the decision. We perceive the stay as sentimentally positive for all DTH companies, especially Sun TV’s unlisted DTH arm, Sun Direct, which has a dominant presence in the state. However, since it is just a stay order, the situation needs to be monitored further. We remain positive on the DTH segment.

DTH players welcome stay on e-tax

In its petition, Dish TV had claimed that levying a tax only on the DTH industry violates Article 14 of the Constitution of India. Mr. Jawahar Goel, MD, Dish TV, has welcomed the stay and believes that e-tax is a burden on the common man for whom TV viewing is the cheapest form of entertainment and information. Mr. Harit Nagpal, MD, Tata Sky, too stated that the tax is discriminatory and denies a level-playing field for the cable and DTH industries. Tamil Nadu government had submitted a bill in the assembly to levy e-tax only on DTH service; thereby, excluding cable television operators and movie theatres from the tax burden. State governments have intermittently introduced e-tax on cable television operators and DTH service providers. Currently, ~18 states levy e-tax.

Stay could be potentially negative for Arasu

With the change in power in Tamil Nadu, the state-run Arasu Cable had been relaunched on September 2, 2011, to break the dominance of existing players.  With some major channels not being aired on Arasu, some cable subscribers had started shifting to DTH. However, the 30% e-tax levy on DTH service providers would have stifled their advantage. With the stay order, we expect momentum to be back for DTH operators in Tamil Nadu.

E-tax would have had marginal impact on Dish TV

Out of a gross subscriber base of 11.7mn as at September 30, 2011, Dish TV has ~0.4mn subscribers in Tamil Nadu.  In FY11, e-tax for the company was ~3.6% of total revenue. Prior to the 30% tax imposed by the Tamil Nadu government, Dish TV was expecting its e-tax burden to be ~7% of total revenue in FY12. However, if the stay is revoked and e-tax levied, the impact on the company’s e-tax burden will increase by ~0.25%.

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