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Total Number of Subscribers: 1626 |
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Date: 17th March 2010 |
Compiled by: M Sathya Kumar |
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The Finance Bill, 2010 has brought in certain changes in the scope of service tax. Cheers! IPL Season Three is back and there is a lot of buzz about it – on the streets, on TV, on FM radio, in cinemas and in almost every home. But this time is it going to bring cheer at North Block too? Why? What's new about it? Who is smarter – the IPL team or North Block team? Let's see what the hot news is on sponsorship of such events as cricket Twenty20 IPL. Apart from sponsorships, there will be games, contests, events and what not. So, while there is going to be fun all around, some people sitting in North Block may be simply watching all that they are going to miss — a hefty service tax collection just because the IPL is happening now. The Finance Bill, 2010 (Union Budget 2010-11), has brought in certain changes in the scope of service tax. For a mega event like the IPL, which started on March 12, the services that would impact from a notified date after the enactment of Finance Bill, 2010, are as follows: Brand Promotion Services of promoting of a brand of goods, services, event, business entity and so on is now proposed to be under service tax net from a notified date (not now). According to a new clause of Section 65(105) of the Finance Act, 1994, any service provided or to be provided to any person, by any other person, through a business entity or otherwise, under a contract for promotion or marketing of a brand of goods, service, event or endorsement of name, including a trade name, logo or house mark of a business entity by appearing in advertisement and promotional event or carrying out any promotional activity for such goods, service or event, will be taxable. For this, brand would include any symbol, monogram, label, signature or invented words which indicate any connection with such goods, services, event or business entity. The business entity could be any association of person, body of individuals, company or a firm but not an individual. This
category of taxable service would be different from business auxiliary
service wherein promotion or marketing of sale of goods produced, provided or
belonging to client and promotion or marketing of services are already
covered. The new service of brand promotion is supposed to have a much wider
coverage and now it is intended that a mere brand promotion would attract
service tax whether or not it can be directly linked to any service or goods.
Many companies like At present, if a brand is promoted without any reference to goods or services (like Tata's campaign of jago grahak jago), disputes are raised on taxability of such activities. Any such endorsement that aids in goodwill or value enhancement or brand establishment will be taxable. In such cases, the promoter of brand who could be a film actor, cricket player or a model charges a substantial amount under an agreement and escape service tax; which may not be possible now. Games of Chance The promotion, marketing or organising of games of chance including lottery will now be a new taxable service from a notified date rather than being clubbed with business auxiliary services. According to clause (zzzzn) of section 65(105) of Finance Act, 1994, any service provided or to be provided to any person, by any other person, for promotion, marketing, organising or in any other manner assisting in organising games of chance, including lottery, Bingo or lotto in whatever from or by whatever name called, whether or not conducted through Internet or other electronic network, will be a taxable service. Many big events do run games and lotteries based on chance. For example, before a match, there could be a contest as to who will be man of the match or the series or which team will win. The services provided for promotion or marketing or organising such games of change will now be taxable services Sponsorship Services In the definition of sponsorship services, exclusion of sponsorship relating to sponsorship pertaining to sports has been removed and any service provided or to be provided to any person, by any other person receiving sponsorship in relation to such sponsorship, in any manner will be taxed. This has been done with a view to tax all such sponsorships relating to games and sports which involve thousands of crores or rupees. It is generally seen that leading business entities lend and associate their brand name, services or products by sponsoring popular games, sports, event for spreading their name, goodwill and reputation. The visibility thus created is immense. This is done with an intention to commercially exploit the brand. Though sponsorships are taxable since July 2006, sports-related sponsorships were kept out of tax net to promote and encourage sports activities. Looking to the present day size and ever-increasing dimensions of sports sponsorships (IPL, Commonwealth Games, and so on), service tax on sports-related sponsorships will be applicable. However, Government may exempt certain category of sports and games in larger national interest and in the interest of that particular sport. Who knows, even the Commonwealth Games may get an exemption. Companies like Coca-Cola, HP, Airtel, Royal Challengers, Samsung, HSBC, Idea Cellular, Hero Honda, Sail are going to have good times in this Twenty20 season – thanks to the timing of the tournament and the Finance Act, 2010, still being in nascent stage of enactment. In this match of fixing tax liability on brand endorsements, sponsorships and event promotions, certainly IPL is the winner. For the North Block team – may be next time, they will have a strong hold on the same. Article
by Sanjiv Agarwal |
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