The public relations fraternity has welcomed Finance Minister P Chidambaram's proposal in the Union Budget 2006-07, presented in Parliament on February 28, to formally bring PR services under the service tax net.
Welcoming the decision, Dilip Cherian, Co-founder and Consulting Partner, Perfect Relations, said, "This is a great move on part of the government. We have been paying service tax for the last two years. So, we are at an advantageous position as we have put the system in place by now."
Rajiv Desai, who recently quit IPAN as President to start his own consultancy firm Comma, said, "It's a good idea. There should not be any problem to anybody to pay service tax as law-abiding citizens of the country."
N Chandramouli, CEO, Blue Lotus Communications Pvt Ltd, also maintained that his company had been paying service tax. "While public relations management services have been specifically included for service tax only in this Budget, Blue Lotus has been charging, collecting and depositing service tax since 2003, when management services came under the scope of service tax. While it does increase the total outflow for the client, if the taxes are being used for the right kind of development, then I would endorse the tax without reservation. Broadening the base of service tax will only help create equity in the service sector."
The Finance Minister also proposed to raise the service tax rate from 10 per cent to 12 per cent and widen the indirect tax net to double the collections to Rs 34,500 crore in 2006-07. During 2005-06, the government is likely to collect Rs 23,000 crore as against the budget estimate of Rs 17,500 crore.
Reacting to the hike in service tax rate, Kulpreet Kaur, Managing Director, Impact Public Relations, said, "In the budget proposal, the Finance Minister, as usual instead of giving some relief to tax payers, gave a punch in the form of hike in service tax rate from 10 per cent to 12 per cent, apart from the education cess. It has been raised for the fourth time – from 5 per cent to 12 per cent. As a result, service users may prefer to pay by cash and not to account for the service availed to save service tax."
Speaking about the repercussions of service tax on the PR industry, Perfect Relations' Cherian said, "I believe the move will lead to consolidation among the small and non-organised PR firms because they may find it difficult to cope with the service tax burden. These small firms will ultimately be acquired by bigger firms."
However, Rajiv Desai of Comma did not see any such thing happening.