These incentives will boost the creation of more digital cinema infrastructure.
The digital cinema infrastructure is a network consisting of conversion of full length feature films into compressed and encrypted digital format and delivering them electronically through dedicated satellite links to secured servers installed at theatres.
The demand for tax incentives include a 10-year income tax holiday, zero customs duty on the import of digital exhibition equipment and service tax exemptions.
These benefits, according to the Federation of Indian Chambers of Commerce and Industry (Ficci), will not only result in over 25-30 per cent growth of the film industry but also help the industry prevent Rs 1,200 crore (Rs 12 billion) annual loss currently incurred due to film piracy.
The move will also encourage film producers to move the production and distribution of films from analogue to digital.
At present, filmmakers spend about Rs 800 crore (Rs 8 billion) for import of film stocks used for making film prints. "This can be saved if digital cinema infrastructure is encouraged by the government through tax incentives," Ficci said in its recommendations submitted to the finance ministry.
Seeking exemptions in customs duty on the import of digital projectors and digital movies, the film industry has submitted that such items should be treated on a par with information technology items, where the customs duty has been reduced to zero.
"It is submitted that for an industry in its infancy, a cost of 12.24 per cent of its revenues will have a significant adverse affect on its prospects, and so it should be exempted from the service tax," Ficci said.
The conversion of analogue film print to digital, the rentals on exhibition equipment and software, and a fee for software decryption and digital screening services - all attract a levy of service tax at 12 per cent plus a 2 per cent education cess thereon.
"Tax exemptions towards the creation of digital cinema infrastructure will fuel the film industry's growth as it has done elsewhere in the world. It saves per print cost of Rs. 50,000 and cuts piracy as the distribution is done by the electronic delivery mechanism through dedicated satellite links," a media analyst said.
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