MUMBAI: Tamil Nadu has emerged as the highest entertainment tax imposer on the direct-to-home (DTH) industry, adding to the woes of a sector which is growing in volumes amid losses.

The Jayalalitha government’s imposition of 30 per cent entertainment tax surpasses that of the state of Uttar Pradesh (25%), and is aimed at directly hurting the Kalanithi Maran-promoted Sun Group. Other DTH operators do not have a wide presence in Tamil Nadu, which accounts for approximately seven per cent of the subscriber universe.

The four southern states constitute 22 per cent of India’s 38 million DTH population. Tamil Nadu is a very low ARPU (average revenue per user) market and with opportunities opening up for DTH after the launch of state-owned Arasu Cable, the steep entertainment tax could act as a deterrent.

"The entertainment tax on DTH seems to be very much a political issue at this stage. While in Tamil Nadu it is going to be 30 per cent, in Rajasthan it has been waived. The DTH industry is saddled with taxes,” said Dish TV managing director Jawahar Goel.

India’s largest DTH company, Dish TV, has a subscriber base of around 0.4 million in Tamil Nadu, according to market estimates. The impact will, thus, be minimal compared to the other private players like Airtel Digital TV and Videcon’s d2h.

Dish TV, the only listed company in the DTH space, expects FY’12 entertainment tax as a percentage of sales to be almost 7 per cent versus 3.6 per cent in FY11. The tax in Tamil Nadu will further impact a quarter per cent more.

Dish TV expects its Ebitda to improve from 24 per cent to 26 per cent as it grows in revenue while costs come down proportionately due to economies of scale.

The subscriber growth in the DTH sector is slowing down in the second quarter of this fiscal by about 10 per cent over the year-ago period.