The Federation of Indian Chambers of Commerce and Industry (FICCI) has submitted a Memorandum on Development of Indian Animation, Gaming and Visual Effects (VFX ) Industry to the Information & Broadcasting Ministry.
The Memorandum stresses that Animation, VFX and Gaming as a vertical is a very big export revenue earner for India. It also stresses on the huge employment generation that this vertical contibutes to. “This vertical will require more than 30,000 trained animators and game development professionals over the next five years” states the document.
To meet the need for talent, FICCI has urged the Government to aid in the setting up of center of excellence on the lines of IITs and IIMs for the Animation and Gaming industry.
Highlighting the examples of countries like Singapore, Korea and China which have enjoyed Government support for ingeniously promoting this sector, the document states the reason 40% of animated content in US is Japanese because “Countries like Japan and Canada have worked hard at developing this industry and have a very strong domestic market” further adding “Once a domestic market gets enough consumable content, the same can be routed for exports”
The highlight of the entire memorandum is FICCI’s six point list of suggestions to the Government that would help develop the Animation, VFX, Gaming vertical.
Recommendations and suggestions in the detailed 13 page document include :-
(i) 10 year Tax Holiday
(ii) Removal of Service Tax
(iii) Removal of Sales Tax on the Software used for Animation, Gaming & VFX production for a period of 10 years
(iv) Exemption of Import duty on hardware for a period of 10 years
(v) Market Development Assistance
(vi) Localization of Animation Content
Following are elaborations of each recommendation:- (extracts from the FICCI Memorandum)
(i) Tax Holiday for 10 years
Today Animation as an industry in India is covered under STPI, but STPI predominantly holds good for a BPO nature of work where outsourcing is the main module and most of the studios which are getting benefited from STPI have to make sure of an export commitment of more than 85%. As a result many Indian studios wanting to produce original content based intellectual property and use art and talent from India to produce animation stories do not get any such benefits.
Though India has a rich heritage, culture and a large talent pool, which can be engaged in creating content for Indian as well as global audiences in transferring 5000-year-old time, tested stories into the new media. The opportunity here is very big and practical but becomes extremely unviable because of the fact that the Indian government through STPI is subsidizing the production cost of the foreign shows; TV shows production whereas the Indian content creation is proving to be far more expensive and does not enjoy the same status as the foreign creative property.
As creating original content in India attracts custom duty and also the freshly levied sales tax (VAT) on off the shelf software, sales tax of 12.2% (which might increase further) and further also the income tax component.
Together these act as a major deterrent against studios producing and creating original content with an Indian heritage base or any other indigenous original content creation within the shores of the country. Currently there is just no encouragement of developing original Indian content to be put forth to the entire world in the form of animation. This is leading to more and more studios working on foreign content and is leading to a severe lack of animated Indian stories in our domestic television schedules. In fact in the current scenario there is not one television channel that is exclusively dedicated to the kids showing original Indian content. Hence our next generations of kids are growing up on a staple diet of foreign superheroes and legends while their exposure to Indian history, culture and heritage is being restricted to school textbooks. Storybooks and comics are being quickly replaced by television content and specially animated television content.
FICCI propose a tax holiday to the production houses doing Animation, Gaming & VFX work for a period of 10 (ten) years, so that cost of creating intellectual property (original content) comes down drastically and the industry becomes viable.
(ii) Removal of Service Tax
The provision for Service Tax is financially hitting the Indian Animation Studios extremely hard; most of these studios are those that are developing a large amount of original content. Those studios that are export oriented and are thus under STPI are not exposed to the Service Tax at all, whereas the ones that are making or planning on making any Intellectual Property (original Indian content) in India for any client or broadcaster have to pay a service tax @ 12.2% (this is going to be @ 12% in the new financial year, as per the latest budget). We all have seen a rapid boom in the Software Industry, thanks to their exemption from the service tax. There is a big potential for Indian Animation Studios to grow manifolds from where they are right now, the major success of the animation sector will be in creating the original Indian content and distributing it globally. If we can make special efforts and can exempt Animation Industry from paying service tax, it will really contribute to a great extent towards promoting the Indian Animation Industry and also the traditional and creative artists. It will also be a great encouragement to the animation studios to develop the original content.
Developing original content requires a handsome amount of money and if this additional burden of service tax is levied, it becomes really difficult to sustain, so a lot of studios are taking the outsourcing way and act like BPOs. This is not at all beneficial for the Animation Industry in a long run.
FICCI propose a complete lift-off of the service tax from the Animation, Gaming & VFX Industry.
(iii) Removal of Sales Tax on the Software used for Animation, Gaming & VFX production for a period of 10 years
The software used for creation and production of Animation, Gaming & VFX attracts a sales tax, which further escalates the cost of production and developing content.
FICCI propose the removal of sales tax on such software for a period of 10 (ten) years.
(iv) Exemption of Import duty on hardware for a period of 10 years
The high-end machines used for the production attracts an import duty. At present the duty structure is like, basic duty of 12.5 %, CVD of 16.32%, special CVD of 4&. After including educational cess, the overall duty comes out to be 36.8%.
FICCI propose the removal of such duty for a period of 10 (ten) years.
(v) Market Development Assistance
Countries like Japan, Korea, China etc provide assistance to the local Animation, Gaming & VFX Industry for overseas business promotion. Their respective Governments and export promotion council take business delegations to various international Markets like Annecy (France), MIPCOM (France), Game Developers Conference (USA), Ottawa Animation festival (Canada), SICAF (Korea) etc.
In order to show-case the promise and potential of Indian Animation, Gaming and VFX industry, FICCI urges the Government to extend its kind support under MDA / MAI activity. FICCI Animation & Gaming Forum volunteers to undertake such business delegations to various key markets for more exposure and visibility, with the kind support of Government.
(vi) Localization of Animation Content
Presently most of the animated content shown in the networks are sourced from outside of India and generally from the existing library at a discounted price. This is one of the serious impediments on the growth of Indian Animation Industry. Many countries like Canada, China, Korea, France, UK etc have made varying levels of mandatory localization of content.
FICCI propose 10% mandatory local content on the networks to began with and to reach 30% over next three years as more indigenous animation content gets prepared and available for domestic / export markets.
