Brand promotions, sponsorships in tax net

First, the government hiked the excise duty and minimum alternate tax (MAT), and then, to add salt to the injury of consumer-focused companies, it included brand promotions and sports sponsorships under the service tax net.

Both items, say tax experts, were long overdue in terms of inclusion under service tax. “It has finally happened,” says M S Mani, indirect tax partner, Deloitte.

For companies paying output excise duty, that is duty on goods manufactured, there is no service tax liability on account of the setoff they claim against duty paid. But for those, who do not pay output excise duty, the inclusion comes as an additional burden. That is because these firms are already paying service tax for marketing and promotion of goods & services, explains Pratik Jain, executive director, indirect tax, KPMG. “The brand bit, however, was out. That has been included now.”

Most FMCG companies as well as durable firms manufacture their products in excise-free zones. The inclusion, therefore, hardly excites them.

Says C K Ranganathan, chairman & managing director, CavinKare, “There will be an impact on ad budgets as a result of this. Typically, the outlay in terms of brand promotions as well as sports sponsorship tends to be high for consumer-focused firms. They would have to fork out more now.”

Typically, most consumer-focused firms are on the lookout for high-viewership properties, where their brands can get maximum mileage and visibility. Cricket, football and hockey are some sporting events where advertisers park their moneys to attract eyeballs to their brands. Says Joy Chakraborty, chief revenue officer, Zee Entertainment Enterprises Ltd, “We haven’t received any feedback from advertisers concerning service tax in the wake of the Budget.”

Zee Entertainment, for the record, controls Ten Sports, which has the right to telecast the Hockey World Cup beginning February 28 in New Delhi. Already, the channel has locked in all its key sponsors, including title sponsor Hero Honda and co-sponsors MTS, Coca-Cola, Musli Power, TVS Shrichakra Tyres, Seagram’s etc.