Indian Advertisers Battle Broadcasters Over Ad Service Tax

06 July 2004

The latest decision by broadcasting body the Indian Broadcasting Foundation has fuelled the fray between advertisers and broadcasters as to who should pay the 8% service tax on Indian advertisements.

Advertisers have been told they must foot the tax bill starting from July 1. But this is unacceptable to many advertising giants such as Hindustan Lever which bluntly states "we won't pay extra" and claims the tax is already included in deals with broadcasters.

Broadcasters are equally firm in their stance against paying the tax, although previous threats to advertisers have been unsuccessful. With the vast majority (80%) of their revenue deriving from prime-time television, a refusal to accept ads net of service tax does not make sound financial sense.

Current practice is that case-by-case service tax is passed to clients by broadcasters, but the IBF favours billing of the tax as a separate factor.

The biggest worry for the loser of the service tax battle is the forthcoming Indian Budget. Finance minister P Chidambaram may raise the tax from 8% to 12%, and as advertising expenditure tops Rs 3,200 crore ($698 million; €569m; £381m) a year, neither party is willing to foot the bill.

And neither party will. Ultimately, as ever, the cost will be borne by consumers -- hit by rising cable subscriptions to cover the tax.

Data sourced from: The Times of India; additional content by WARC staff