Move to tax ad agency services to print dropped

New Delhi, Nov 20 | Updated: Nov 21 2005, 06:43am hrs
Companies planning to hike their adspend and the print media can both breathe easy. The finance ministry has dropped the move resented by them to expand the scope of taxing advertising services by treating the amount paid by the ad agency to the print media as a taxable input service.

Official sources told FE that the draft circular issued by the Central Board of Excise and Customs (CBEC) on October 11, which virtually proposed to put advertising in print and electronic media at par for the purpose of determining the value of taxable service, would not be enforced.

We have decided not to push the draft circular, an official said. When asked whether the board would issue a clarification to this effect, he said that might not be needed as it was just a draft circular, intended to elicit comments.

We might just keep mum, he added. If the circular was implemented, the total amount billed by the ad agency to the client including that paid by the agency to the print media, would have been subjected to tax at 10.2%.

Breathe Easy

If the tax had been imposed, the total amount billed by the ad agency to the client would have been subjected to tax at 10.2%
The draft circular had agitated the newspaper industry, which feared losing its comparative advantage vis-a-vis TV
Print media accounted for Rs 5,500 cr or almost 50% of the total advertising industry size of Rs 11,800 cr in 2004

 
Currently, the levy is only on the amount paid by the client to the agency as commission. In contrast, as for advertisements in electronic media, the tax is levied on the total bill amount as broadcasting services are taxable.

The draft circular had agitated the newspaper industry, which feared losing its comparative advantage vis-a-vis television. Corporates spending large amounts on advertising also objected to the move, as they faced the prospect of the agencies passing the burden on to them, at least in part.

Media experts had said the proposed change in valuation would result in India Inc cutting back its print media ad spend.

As per TAM, the print media accounted for Rs 5,500 crore or almost 50% of the total ad industry size of Rs 11,800 crore in 2004, while television accounted for Rs 4,900 crore. Tax on advertising services is budgeted to touch Rs 309 crore this fiscal, as compared with Rs 278 crore in 2004-05.

The circular said the amount paid by the agency to the media for obtaining space is in the nature of input service.

It added, Inputs or input services are integral parts of the taxable service provided and the value of all such inputs and input services is liable to be included in determining the consideration for the purpose of levy of service tax.