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OOH advertising industry gears up for new service tax rules

09-May-2011
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OOH advertising industry gears up for new service tax rules

On May 3, 2011, outdoor advertising media owners and advertising agencies met under the auspices of Indian Outdoor Advertising Association (IOAA) to find a way to follow the new service tax rules announced in the last Budget.

Indrajit Sen, Vice-Chairman, IOAA, highlighted the importance of coming together and taking collective decision for the betterment of the industry. The service tax issue, Sen forewarned, was a prelude to the Goods and Services Tax and so there was little the industry could do to change it. He said, “We have to live with it. But the reason we have come together today is to see how to comfortably live with it and grow together.”

IOAA has appointed KPMG to study the change, explain the challenges and to suggest a plan of action. Santosh Dalvi, Executive Director, KPMG, decoded the changes and how it impacted the industry, both financially and procedurally.

It was made clear that provisions like billing within 14 days of completing service and paying agencies and media owners within 90 days and the new provisions of Service Tax accruing at point of service delivery is going to severely affect the working capital of both agencies and media owners unless immediate steps are taken to create a formal structure for conducting transactions in this industry.

It may be noted that unlike other media like print, television and radio, the outdoor advertising business has so far been quite unstructured with no standard norms for initiating the transactions or ending it and no payment norms or standard practices. One to one negotiations are the order of the day. This has also led to a general stagnation in this medium both in terms of investments in modernising the medium and also revenues generated by it from advertisers. Incidentally, outdoor media advertising has gone a long way globally as a major source for PPP investments for urban development and city modernisation projects in all advanced economies.

As the first part of the meeting laid the foundation, Noomi Mehta, Chairman , IOAA, presented recommendations towards creating and strictly implementing a standard operating procedure common to the industry which are to include prescribing a minimum contract period, execution of contract and release orders prior to starting a campaign, a strict 60 days credit period, steps to provide proof of display in a practical manner, involvement of independent monitoring agencies, accreditation process of new agencies, timeframe for raising invoices and also issue of credit notes, amongst other things.

Sam Balsara, CMD, Madison World, also addressed the gathering and shared his perspective on the issue and with his immense experience brought in dimensions from other media, viz. print and TV; going forward he suggested involvement of the AAAI as well.

Sen wrapped up the session by proposing names of an action group with fitting representation from media owners and agencies. The group agreed to get things going, that is form a detailed SOP for the industry with a self imposed deadline of 15 days to be proactive and not reactive with external changes waiting to happen.

It may be recalled that the outdoor advertising industry has estimated annual revenue of about Rs 1,600-1,800 crore, with nearly all brands using the medium. Categories like telecom services, BFSI, media & entertainment, automobiles, durables, FMCG are some of the large spenders in this medium. In order to bring about a structure for this industry, the clients would be equally affected. It remains to be seen how they react to this attempt, but any formal SOP for this industry can be expected to only improve effectiveness greatly which would only benefit advertisers.

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