Advertiser-broadcaster standoff continues

The stalemate between advertisers and broadcasters over the issue of service tax continued on Tuesday as The Indian Society of Advertisers (ISA), which represents 200 of the big advertisers, stuck to its guns claiming that it is the ‘service providers' who are liable to pay the 5 per cent service tax. On its turn, the apex body of broadcasters, the Indian Broadcasting Foundation (IBF), stood firm on its contention that service tax is payable by the advertiser only. "We have now started pulling out the banners and the sponsorship logos of the non-compliant advertisers from television," Bhuvan Lall, executive director of IBF, told agencyfaqs! on Tuesday evening. Earlier, IBF members including Zee, Sony and STAR stopped airing the commercials of advertisers who, they claimed, refused to follow the IBF diktat.

IBF's hard line stand becomes understandable when one considers the stakes involved. The television broadcasting industry earns around Rs 3,000 crore annually through advertising revenue. A 5 per cent service tax on this would drain a cool Rs 150 crore off the system. As a result of the move by IBF to block the non-compliant advertisers, some of the big spenders on television - including Hindustan Lever, Colgate, Nestle, Pepsi, Hero Honda and Marico - now face the prospect of going off air completely. It seems advertisers are not ready to acquiesce either. IBF sources indicate there was no communication from ISA till late into Tuesday evening indicating a change of mind.

The issue of service tax has been a vexed one from the time former finance minister Yashwant Sinha made an announcement to this effect in his Budget speech a couple of years back. Service tax was extended to advertising revenue generated through television commercials for the first time in the 2000-01 Budget. While it was supposed to be effective from July 15, 2001, it has largely remained uncollected due to the dispute between broadcasters and advertisers as to who was liable to pay it.

While the broadcasting industry has maintained in several presentations to the Government that the additional 5 per cent service tax will hamper the growth of the nascent broadcasting industry in India, the advertising industry has steadfastly resisted the service tax saying this would be tantamount to double taxation. Their contention: Why should the ad industry pay another 5 per cent service tax as it already pays a service tax imposed by the Government in the mid-nineties. The onus therefore was on the advertisers, who are unwilling to relent either.

The issue looks unlikely to be sorted out very soon. It seems, in a recent letter to the Advertising Agencies Association of India (AAAI), IBF has indicated "From 1 September 2002 onwards all agreements with advertising agencies by IBF members would specifically have a clause in the Release Order that service tax will be borne by the clients... Release orders received without such specific instructions will not be entertained by our members."

However, most southern channels, including Sun TV, have integrated service tax into their ad tariff and may not go along with this circular, industry sources said. © 2002 agencyfaqs!