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Advertisers, broadcasters cross swords on service tax

02-June-2004
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Advertisers, broadcasters cross swords on service tax

Broadcasters and advertisers have once again crossed swords on the issue of the eight per cent service tax levied on advertisements broadcast on television channels.

The Indian Broadcasting Foundation (IBF) is writing to its members asking them to collect the service tax in addition to the total amount payable by the advertisers.

This has not found favour with the advertisers. The Indian Society of Advertisers (ISA), which includes most of the big spenders such as Hindustan Lever Ltd, Castrol and others, have said that the advertising rates should be inclusive of the service tax component.

"Our position is clear. Service tax cannot be levied in addition to the advertising deal and should be part of the rate card or the negotiated rate. Currently, none of the advertisers are paying it as an addition. The contracts and agreements very clearly state that the deal is inclusive of service tax," said an ISA official.

The ISA at a recent meeting reiterated this position and has already written to some of the top broadcasters in this regard.

The IBF, an apex body of the broadcasting industry, has said that globally advertisers pay the service tax.

"Service tax is an indirect tax and can be passed on to the beneficiary. We have taken a unanimous stand on this and hope that the advertisers will accept this," said an IBF official.

This is not the first time that the broadcasters and the advertisers have had differences on the service tax issue. Earlier, some of the IBF members had decided to pull off air ads by Hindustan Lever.

The ads came back after the advertiser and individual broadcasters worked out an amicable solution.

This time too, the broadcasters are concerned about the stance HLL and some other big advertisers would take on the issue of service tax.

"While the medium-to-small-budget advertisers have agreed to pay up the service tax on the total value of the advertising deal, some of the big ones want it to be part of the negotiated rate. It is important to sort out the issue with the big spenders," said an IBF member.

Advertising industry sources said that the additional payment of eight per cent service tax by big spenders would affect their budgets in a big way.

"It is an additional cost and companies may have to alter their media budgets. But if service tax is part of the negotiated rate, the impact on the budgets would be less," said a media planner.

Meanwhile, Prasar Bharati, which is also a member of the IBF, is planning to seek a waiver on payment of service tax from the Finance Ministry as it is a public service broadcaster.

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