8% service tax on ad revenues now effective

MUMBAI: It was an announcement made in finance minister Jaswant Singh's 28 February. But it has just come into effect.

The service tax on advertising spends on television, which was increased from five per cent to eight per cent in Singh's 2003-2004 budget proposals, is effective as of yesterday.

The Rajya Sabha (Upper house of Parliament) only recently cleared and became effective vide a notification issued yesterday (14 May 2003).

The notification No. 4/2003-Service Tax was introduced in January this year as part of the budget proposals. It was only in mid-2002 that the five per cent service tax rule became applicable.

Effectively, every channel stands to lose an additional three per cent in ad sales revenue at a time when the conditional access bogey is already sending alarm bells ringing across the television scenario.

However, there is some relief in the fact that service providers can claim credit for input costs. This will benefit them in the long run as the industry constituents won't have to face 'dual taxation' burden. For instance, broadcasters will not have to pay for certain costs incurred by the production houses since the production houses have already factored for them. Similarly, clients and ad agencies can claim rebates for services which they provide to clients - such as telephones, faxes, production costs of creatives, amongst others.

The issue of payment of service tax has always been a contentious issue and created a rift among the advertising community and broadcasters earlier too. The broadcasting industry has held that the service tax, being indirect in nature, would have to be borne by the end-user, namely the advertiser. Ad agencies, too, have tried to push the burden to advertisers who have refused to bear the same. Advertisers have tried to push the burden on ad agencies - asking them to toe the line at the risk of losing the account or business.

The advertising community has always contended that the extra burden would add to its costs and have an adverse impact on total advertisement spend by the industry.

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