A day after all IBF members agreed to block advertisements of clients owing to non-resolution of the service tax issue things seem to be heading towards a amicable resolution. Late last evening Sony TV reached an agreement with majority of its clients who have agreed to pay the entire extra 5% service tax.
According to the agreement reached amongst the broadcasters large advertisers including HLL, Pepsi, Smith Kline Becham, Nestle and Colgate had their ads blocked after they refused to bear the service tax levied by the government on the broadcasters.
Says Rohit Gupta, Head, Ad Sales, Sony TV, "Yes we have reached an agreement. The ads will be on air from tomorrow. The advertisers would be paying us the service tax. Sony has reached an agreement with most of the big clients including Nestle and HLL. In fact, 70% of the advertisers have agreed to pay the tax."
"We have been talking to them and have explained that it is not going in our kitty neither are we are not offering any discounts on rates for compensate for it" adds Gupta.
Talks are currently on amongst the other parties involved to resolve the matters but when contacted by exchange4media very few people were willing to be quoted officially. Sources in the industry point out that the issue has been simmering under the surface for quite some time and after the broadcasters failed to convince the government on taking the tax back they have passed the ball in the advertisers court.
The IBF circular stating that IBF members will not air the commercials of the companies, which have refused to pay the service tax, came into effect from September 1.
It is not known yet whether Star TV has reached any agreement with the advertisers. When contacted by exchange4media, Star TV spokesperson, Yash Khanna, had this to say "Any tax levied by the government has to be paid by the consumer, so why should it be different in this case. If there is 5% service tax on credit card, the consumer pays it, and not the bank." But that was before the news about Sony having resolved the matter came in. Star TV, VP, Ad Sales, Raj Nayak, was not contactable through the day for his comments.
Agencies and clients though chose to remain tight-lipped about the issue citing a negative impact on the on going discussions. But off record, some sources say that legal opinion sought on the subject has confirmed that the broadcaster and not the client should pay the tax.
Whatever be the argument, the ongoing tussle will not only lead to a revenue loss for the clients but also temporarily throw the activities of advertisers out of gear.