Comparison of subsidies in services across emerging economies: Tourism and audiovisual sectors

Abstract

Subsidies are one of the most commonly employed tools of encouraging development by Governments of developed and developing nations. Subsidies take the form of grants, loans, tax-breaks or any benefit in kind offered through Government resources that in general lower the costs for the recipient of the subsidy. While subsidies in the trade of goods have been well understood by the international community, subsidization in the service sector has ambiguous boundaries and its impact for the economy is less clear. Considering the growing contribution of services sector to the GDP of a country- especially developing economies- it is important to understand the various techniques used by nations to subsidize services and their consequences. The scope of this project is restricted to subsidies offered by developing economies in tourism and audio-visual sectors. The rationale behind study developing economies is to gauge the objectives of each developing nation to subsidize and obtain insights that may be applied to the Indian economy. Tourism sector acts as an important source of revenue as well as foreign exchange for developing nations. Besides, this sector has externalities affecting employment and infrastructure development significantly. Audio-visual sector on the other hand has been a bone of contention among different nations in the Uruguay Round of negotiations for General Agreement on Trade in Services (GATS) treaty, as it is deeply connected to the culture and traditions of a nation. At the same time, in today’s digital world, audio-visual content gains importance as an export service and also has spill-overs to the tourism sector of a nation. A comparative study of subsidies in these services among other developing nations could unearth key takeaways for India – tourism and audiovisual services both being important services in India. Tourism is a broad category of services, encompassing recreational tourism, medical tourism, Meetings, Incentives, Conventions and Exhibitions (MICE) tourism, ecotourism, etc. The fiscal and non-fiscal incentives offered by Malaysia, Singapore, Thailand and Philippines for recreational and medical tourism were compared. The fiscal incentives are found to be tax-based in general and subsidized inputs for tourism services like infrastructure and imported equipment. In case of MICE tourism, Malaysia, Singapore and Thailand – the main countries promoting this form of tourism in Asia – are analysed with respect to incentives. In this case, mostly non-fiscal incentives rather than subsidies are the major form of incentivizing. In the audio-visual sector, the incentive schemes offered Brazil and Philippines are compared. The subsidies in this case are mostly oriented towards film production rather than any other form of audio-visual service and the major mode of subsidization is found to be tax deductions and exemptions. In addition, both Philippines and Brazil offer direct incentives for film production in the form of funding film ventures. Another common feature is the signing of co-production treaties with other nations to facilitate foreign film production in the country. Philippines has also proposed a law that will extensively promote film tourism in the nation and is aimed at foreign film and TV productions. The study of subsidies in services across developing nations clearly indicates a preference for indirect incentives of tax deductions and exemptions. Subsidies in both the tourism sector and audio-visual services sector are largely input-based. However, in some services, MICE tourism and audio-visual services, these developing nations rather than relying solely on subsidies, use a combination of fiscal and non-fiscal incentives to achieve a better impact.