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FICCI urges govt to relieve broadcasters of TDS on 15% agency commission

MUMBAI: Contending that ad revenue is one of the major streams of revenue for television broadcasters, the Federation of Indian Chambers of Commerce and Industry (FICCI) has demanded that the government exempt broadcasters from paying tax deducted at source (TDS) on the “15 per cent agency commission”.

Broadcasters have to deduct tax at source under Section 194H on the “15 per cent agency commission”.

In its pre-budget memorandum to the government, FICCI has explained that “15 per cent Agency commission” mentioned by broadcasters in its invoices for ad airtime sale raised on advertisement agency/advertisers is merely a presentation in the invoices and not a real transaction.

“Neither the broadcasters nor advertisement agency recognises the same as revenue/expense. It is customary in nature, as is also evident from the fact that even on the invoices raised directly on advertisers; the said ’15 per cent agency commission’ is appearing,” FICCI explained.

Further, it said, that broadcasters are not supposed to make any payments towards “15 per cent agency commission” mentioned in the invoice, as there is no agreement or arrangement to pay such 15 per cent agency commission with advertisement agency/advertisers.

In fact, broadcasters do not make any payment to advertisement agency/advertisers in respect of the said “15 per cent agency commission” mentioned on the invoices.

Considering the nature of the transaction, FICCI recommended that the government issue a clarification/instruction “that no taxes need to be deducted at source by the broadcasters on the ’15 per cent agency commission’ as mentioned in the invoice raised by broadcasters to advertisement agency/advertisers”.

Withholding tax/royalty on technical services

On withholding tax on royalty/fees for technical services (FTS) payable to non-residents, FICCI has recommended that the rate of tax on royalty/FTS should have been increased only towards parent-subsidiary transactions and the brunt of higher rate should not have been imposed on the other third-party transactions (the third-party transactions could be chargeable to tax @10 per cent/ 15 per cent).

Further the increase in rate should be limited to tax suffered in dividend distribution transaction, that is, 15 per cent, FICCI said.

The Finance Act 2013 had increased the withholding tax rate on royalty/fees for FTS payable to non-residents from 10 per cent to 25 per cent (excluding surcharge and cess).

While introducing this provision, one of the major concerns expressed by the government was repatriation of profits by the Indian tax payers to their parent company by way of royalty and FTS.

However, the said transaction is presently anyway subject to ‘arm’s length test’ under the transfer pricing regulations, FICCI contended.

It also said that in cross-border agreements, more often than not, payment of consideration to the non-residents is net of any taxes. In other words, the Indian companies have to bear the taxes in connection with the payment of royalty/FTS, which would go up to 37 per cent under the Act.

Therefore, this could be an additional cost for the Indian companies and adversely impacts the cost competitiveness of the Indian companies and their profitability. Further, most DTAAs signed by India, barring a few, have a royalty/FTS withholding tax rate of 10 per cent or 15 per cent.

Rationalisation of taxes

FICCI has recommended that the central government, along with state governments, needs to rationalise the tax regime for the entertainment sector.  It has requested the government to consider the continuation of subsuming the entertainment taxes applied by state governments under one comprehensive GST levy, as originally proposed.

Exclusion of the entertainment tax levied by the local bodies from the GST purview would result in the back-door entry of entertainment tax and shall be contrary to the basic philosophy and objectives of the GST reform and significantly undermine its benefits.

“Continuing with entertainment tax under GST shall also perpetuate the complexity and anomalies that arise in the current indirect tax regime and hence a supplementary tax on entertainment is unwarranted,” FICCI said in the memorandum.

According to FICCI, the rate of taxes, which range from 30 per cent to 70 per cent, especially the entertainment tax imposed by the states, over and above the service tax, are punitive in nature. In addition, the central government has levied service tax at 12.36 per cent on the transfer of copyrights, which are already being taxed as ‘goods’ under the various state VAT legislations.

Tax exemptions for radio broadcasting

FICCI has urged the government to provide tax holiday of five years for new capital investment in Phase III of FM radio auctions, reduce customs duty on capital equipment for radio broadcasting to 4 per cent, and service tax exemption for billings to service recipients covered in the negative list.

Entities covered by the negative list are not subject to levy of service tax on services provided by them. However, services provided to them are subject to service tax if the service provider does not qualify under the negative list. To avoid the cascading impact of taxes and rationalise the tax provisions, exemption from levy of service tax should be provided for services rendered to entities that are covered by the negative list.

Click here to read the full recommendations.