The Union Budget 2006–07, presented in Parliament on February 28, is much on the lines as previous years as far as the clauses that have any effect on the Indian media industry are concerned. A new addition in this year’s Budget is the inclusion of “sale of ad space or time, other than print media, for advertisements” under service tax. Service tax has also been hiked from 10 per cent to 12 per cent. However, this hike is not being seen as a big setback, but players still have their differences on this point.
To put things in perspective, the increase in service tax for selling ad space is clearly stated to be observed in all mediums – the only exception being the print medium. All players see the fact that the increase of almost 2 per cent is barely something to fret upon.
Ernst & Young’s Industry Leader (Media and Entertainment Practices), Farokh Balsara, explained, “Service taxes were expected to increase, but the point to note is that when one levies service tax, it does increase the cost of the service, but does not stop people from consumption of the service. It becomes a part of life and we see both kinds of cases, where the media owner chooses to bear the cost, but largely the advertiser factors it in his spends.”
Sam Balsara, Chairman, Madison Communications, asserted that the increase of almost 2 per cent should not worry any one in the industry. What baffled him, however, was the point where the budget quoted: “…The new services to be covered include ATM operations, maintenance and management; registrars, share transfer agents and bankers to an issue; sale of space or time, other than in the print media, for advertisements;… and public relations management services.”
“It is not really a new area,” said Sam Balsara, adding, “It is very clear that we have been paying service tax across mediums for the last several years. We haven’t been able to understand what the Finance Minister has in mind when he says service on everything except print. What I can only surmise, and I could be wrong, is that there was a bit of ambiguity on the outdoor and other emerging mediums, and he removed any doubt with this clause.”
Nagesh Alai, Executive Director and Group CFO, FCB Ulka, too felt that the clause was more of a clarification, but for him it was clarification on a different point. He divulged, “A few months back, the government had issued a circular suggesting that print advertising would also be taxed. This clause is more of a clarification that that wouldn’t be the case.”
Raj Nayak, CEO, NDTV Media brings in a completely different line of thinking here, where he is clear that the budget does lead to the creation of an unequal playing field. He said, “It is unfair to have a non-level playing field where you have service tax in TV and radio advertising and there is no tax on print advertising. If you are taxing advertising, you should tax any kind of advertising without discriminating between mediums.”
Elaborating further on this point, he said, “What is the rationale? Just to cite an example, my driver, who is an illiterate, is better informed because of TV, which today has become viable enough to reach the poorer sections of the society. When you tax TV advertising, by default you are creating an unequal playing field. If the objective was to raise Rs 600 crore, (12 per cent of the Rs 5,000 crore TV industry) a better thing have been to bring down the service tax to 6 per cent and charge is across the board, that would be fair and beneficial to everyone.”
Nontheless, Nayak was of the opinion that on the larger picture, the budget was a positive one. In regards to the increase in service tax, he, too, believed that in a “buoyant economy, this should not pose a problem to anyone.”
This is much on the lines of what Zee Telefilms EVP, Network Sales, Joy Chakraborthy, thought, “I foresee no problem as every client and agency has a contingency budget and they factor such development before they plan a fiscal year. The increase anyways is marginal and was in always expected to happen.” He further informed that at Zee Telefilms, all Network deals were exclusive of service tax and that service tax was subject to ‘as applicable’.
The reactions from the other mediums aren’t much different either. Giving the radio sector’s point of view, Hari Mathur, CFO, Radio Mid Day, said, “In a sense, the cost to the advertiser has gone up, but this really just gets added and passed on. This essentially is a marginal increase and so doesn’t alter the course for anyone.” Bringing a futuristic point of view here, he added, “Service tax by 2010 is expected to be in the 16 per cent mark. A unified GST (goods and services tax) is expected across products and mediums and this is just a phase by phase lead up to that.”
Prashant Panday, Deputy CEO, Radio Mirchi, added, “The increase affects everyone and in many ways one is reconciled to these things. I don’t see too much of a change with this development.”
Pratap Bose, CEO, Kinetic, (South Asia), brought in the outdoor perspective saying, “Since outdoor, too, has been subject to service tax in the previous years, where we actually have faced the problem of living with a 0 per cent to 10 per cent service tax, this is an easier deal to digest.”
FCB Ulka’s Alai brings in a broader point of view here. He said, “In any instance of an increase in any tax, there is always reallocation of budgets. But this really isn’t a significant increase given the kind of spends that we have in the Indian advertising industry today. Also, people eventually do get used to such changes.”
A point that Alai and Sam Balsara brought out was that given the fact that there was the choice to offset service tax with excise duty, advertisers did have the opportunity to encash on these benefits.
Said Balsara, “The bad news would be for those people who don’t have service tax or excise, who will not be able to claim the benefit. But people who are paying brand ambassadors and so on, will get some kind of relief.”