The Supreme Court's recent ruling permitting dual taxation on television broadcasters could have far-reaching implications for over-the-top (OTT) platforms, subscription-based digital content services, and gaming applications, industry experts have warned, according to an Economic Times report. The verdict is expected to increase the tax burden and create uncertainty in a sector that has so far operated under a streamlined Goods and Services Tax (GST) regime.
Dual Taxation Permitted
In its judgment dated May 22 in the case of Asianet Satellite Communications and Others, a bench comprising Justices B V Nagarathna and N K Singh held that broadcasting encompasses two distinct aspects—delivery of service and provision of entertainment—both of which can be taxed separately by different authorities. This means the centre can levy service tax on the act of broadcasting, while state governments may impose entertainment tax on the content consumed by viewers, according to the report.
"This ruling is mainly premised on the basis that both taxes deal with different aspects of broadcasting activities and hence, there is no overlap in taxing powers of the Centre and state," said Saloni Roy, Partner at Deloitte India, as cited in the report. While the case pertains to the pre-GST era, Roy noted that the decision could have "significant implications" for the digital content industry and has reintroduced an element of tax uncertainty.
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Aspect Theory
The judgment endorses the "aspect theory" in taxation, which allows different authorities to tax different elements of a single activity. According to Saurabh Agarwal, Partner at EY, this interpretation could pave the way for states to impose entertainment levies on digital platforms such as OTT services, social media, and gaming apps. "This goes against the spirit of GST, which was designed to unify and replace various indirect taxes, including entertainment tax," he reportedly said.
"This ruling may pave the way for states or even local bodies-under Entry 62 of the Constitution-to reintroduce such levies under the label of 'entertainment'," Agarwal reportedly added, noting that this may pose a challenge for the GST Council.
State-Level Levies
Several states have already enacted laws enabling such levies. For instance, the Haryana Municipal Entertainment Duty Act, 2019 authorises duties on public entertainment events, while the Maharashtra Entertainments Duty Act, 2023 includes direct-to-home (DTH) services within its ambit. Tamil Nadu imposes both GST and entertainment tax on Indian Premier League (IPL) match tickets.
The digital industry under the streamlined tax regime under GST was aware of the taxation burden, but this decision reintroduces uncertainty, with the possibility of more states taxing OTT platforms, content creators and gaming applications in the name of entertainment. "There are many factors which should act against higher taxes for digital media as an indirect impact of this judgment, including the lack of territoriality in delivery of such services," said Shashank Mishra, Partner, Shardul Amarchand Mangaldas & Co, according to the report.
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