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Lever, Colgate ads off air on main satellite channels over service tax issue

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MUMBAI/NEW DELHI: The deadline was 1 September. And true to the warning issued earlier, the top channels including Star, Sony and Zee TV have stopped airing ads of Hindustan Lever products as well as Colgate from yesterday. Reason: these are the two biggest advertisers who are still not adding the 5 per cent service tax (imposed by the government) in the final release order of ads. Nearly all the other main FMCG companies have fallen in line, ad and broadcasting industry sources say.

The broadcasters, including Doordarshan, under the aegis of Indian Broadcasting Foundation (IBF), had decided that advertisements from those clients would not be accepted for airing from August-end where the 5 per cent service tax is not included.

Though HLL's media buying agency Mindshare Fulcrum has been insisting that the service tax was being included in the final payment, the broadcasters' stand has been contrary to this. Vikram Sakhuja MindShare Fulcrum South Asia managing director maintained that MindShare was following the Indian Society of Advertisers (ISA) directive on the matter. Sakhuja says: "In case the broadcaster requires that the final bill separates the service tax component and so long as the overall rate is part of the gross negotiated rate that we have reached with the broadcaster, then we are agreeable to that." Sakhuja added that negotiations to sort out the matter were on and that he expected an amicable resolution to the whole issue."

A senior executive of the IBF, whose present chairman is the chief executive of Prasar Bharati KS Sarma, today told indiantelevision.com that the advertising agencies and their clients have to fall in line as the broadcasters would not bear the additional burden of 5 per cent service tax.

Another senior industry source said other big FMCG clients like Procter & Gamble, Nestle, Coke, etc who had earlier not been willing to accept the IBF's contention on the matter had come on board.

Two relatively smaller advertisers that are also being blacked out are SmithKline Beecham and Marico. The case of Pepsi is not clear still with a representative of one broadcaster saying they had agreed in principle though not signed on yet while another says Pepsi is also on the blacklist.

Still, not all broadcasters have promptly resorted to blacking out ads from certain companies. Prasar Bharati, for example, is still undecided on what course of action to take where defaulters are concerned though it had sent out a letter to all advertisers to this effect last week.

A senior Prasar Bharati officer told indiantelevision.com that Doordarshan is yet to decide on the future course of action, though other broadcasters may have started taking action. Moreover, Prasar Bharati, despite becoming an autonomous body, still works like a government body where snap decisions are rare. The top honchos of Prasar Bharati, it is learnt, were out of town.

But not all advertisers and their agencies have become the focal point of the controversy as one chief executive of a media company pointed out.

According to Haresh Chawla, CEO of Television Eighteen Ltd, which has a joint venture with CNBC Asia for running the CNBC India channel: "I don't think everybody (ad agency and advertisers) is at fault. At least those who are advertising on CNBC India are including the 5 per cent service tax (with the ad release order). We have had no problem on this front."

The issue of service tax has been a vexed one from the time former finance minister Yashwant Sinha had made an announcement to this effect in Budget speech a couple of years back.

While the broadcasting industry has maintained in several presentations to the government that the additional 5 per cent service tax may hamper the growth of the still-nascent broadcasting industry in India and that this burden should be borne by the advertising industry, the latter had been taken a different stand - why should the ad industry pay another 5 per cent service tax as it already pays the service tax which was imposed sometime in the mid-90s.

To pay nor not to pay, now, is the big question which is haunting some of the real biggies (and some not so big) of the ad industry.

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