Taxing thoughts for the advertising agencies

MUMBAI: The advertising agencies association of India (AAAI), in a bid to ensure that agencies have a complete understanding of the accounting systems, organised a seminar for all agencies addressing the issue of tax deduction at source (TDS) and its implications. The seminar also addressed to relevant details vis-a-vis the new system of electronic TDS which will come into play from 1 April 2005.



Addressing the seminar chief commissioner of income tax Hardayal Singh told the gathering that although India was developing at a decent pace but as regard to taxation issues there still remain certain issues that pose serious concerns.



Since the 1980’s the country has been growing at a rate of 6 to 8 per cent per annum. Nevertheless the tax – GDP ratio in India remains at a poor 15 per cent as compared to the UK (37.4), the US (29.6), Japan (27.1) and Korea (26).



Subsequently the direct tax to GDP ratio of UK accounts for 13.27 per cent, Australia's 16.46 per cent while India lags far behind at 3.26 per cent. The relevance of this data was really to drive home the point that tax collection in India stands remains in a dismal state. Hence to raise the level of tax collection as painlessly as possible, one of the primary ways is through TDS (tax deduction at source). Avowed to the purpose of raising the tax levels in accordance with the law and with minimum cost to the society and the government, strategies that were broadly proposed were as follows:

Publicity campaign propagating TDS

Making compliance as easy as possible

Ensuring awareness of the obligation deductors (agencies) have towards the government

Carrying out surveys to analyse how companies are going about their tasks and help them comply better.

Also ensure that the Government relies on voluntary compliance.

Going back a bit, in June 2003 the government introduced e-filing of the returns. 31 June 2003 witnessed a reduction in the number of returns filed to only three. Now in the New Year, come April and sec 199 will undergo a change with deductors not having to issue a TDS certificate to the deductee and instead OLTAS (Online tax accounting system) will come into play. Also de-materialisation of TDS certificates will take place with the coming of electronic-TDS.

A significant issue raised at the seminar was that when advertising agencies make payments to the media are they required to be charged separately for TDS?

According to the interpretation, when the advertiser pays the advertising agency, he has to deduct one per cent as TDS. But then advertising agencies required to pay TDS on advertising commission?

It being, if the advertising agency and the media share a principle to principle relationship then TDS does not come into play, although if they share a principle to agent relationship then TDS has to be imposed. So the commission garnered by the advertising agency has to first be defined as to whether it is a trade discount or a commission. The decision is yet to be made although thoughts on this were invited by the chief commissioner so as a mutual decision could be arrived at.

Looking at where the tax information network (TIN) is moving this year, the national securities depository LTD (NSDL) has been entrusted the responsibility of TIN, the system scalable to offer easy access to tax administration and tax payers. Tax payers will be provided the facility of accessing TIN through a secure and confidential permanent account number (PAN) based identification to ascertain tax payments credited to their account and the status of their returns and refunds.

The seminar - which was conducted by Senior Officers from the Office of the Commissioner of Income Tax (TDS), Mumbai proved useful and educative not only for finance / accounts people in advertising agencies but as well as for senior officers of CIT (TDS) as they not only addressed concerns about TDS but also demonstrated e-TDS filing and other recently introduced procedures and developments.

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