Top Bollywood celebrities under CBIC scanner over alleged GST evasion

Face charge of incorrect declaration to dodge tax

At least three Bollywood celebrities have come under the tax authorities’ scanner allegedly for dressing up their brand endorsement as “sponsorship” to avoid paying goods and services tax (GST), resulting in significant evasion.

The rate for brand endorsement is 18 per cent and endorsers are supposed to charge the brand/company concerned and pay the tax authorities if the amount they receive is above the GST threshold, which is Rs 20 lakh annually.

This came to light during the probe into online gaming and fantasy sports companies by the Central Board of Indirect Taxes and Customs (CBIC).

“These celebrities were supposed to raise invoices against the remuneration charging GST ... Instead, they acknowledge the amount received as ‘celebrity sponsorship services’ to the recipient under the reverse charge mechanism of GST,” an official privy to the development said.

Reverse charge means the liability to pay tax is on the recipient (company) and not on service provider (celebrities).

However, this mechanism is for certain services such as advocacy and sponsorship.

The CBIC is examining the matter and will soon issue notices on this.

“Endorsement by actors and celebrities does not qualify as ‘sponsorship’ but many of them are misusing the reverse charge technique as a loophole to evade taxes,” another official said.

Officials suspect part of the remuneration to these actors was paid in cash, which is being allegedly used for real estate purchase.

The official said since the onus of paying tax was on the endorsers, the companies concerned neither claimed inputs nor showed them on their books.

The indirect tax authorities are learnt to have made enquiries with several companies, particularly online gaming firms and fantasy sports, which have engaged film actors and sports personalities for brand promotion.

“Since it would be an input service for the recipient (brand/company), GST is not expected to be a cost for endorsers (celebrities). However, any mis-declaration leading to GST evasion would attract interest and steep penalties in addition to the GST amounts at a later date,” said M S Mani, partner, Deloitte India.

Once the formal notices are issued, they will be liable to pay a fine of up to 100 per cent of the taxable amount and could also face prosecution, officials indicated.

Experts, however, say it is not easy to keep track of wrong declaration in such matters because endorsers maintain multiple GST registration numbers in different names and accounts.

Facing the heat

• Brand endorsements attract 18% GST
• Endorsers (celebrities) are considered service providers under 
• GST law
• They are supposed to raise invoices and pay tax on brand contracts
• Instead, they acknowledge the amount received as ‘sponsorship services’ under reverse charge mechanism
• This means tax liability is on company and not on them
• Tax sleuths suspect multi-crore tax evasion due to wrong declaration
• Matter came to light during a probe against online gaming firms