Agencies to start paying 5% Indian service tax

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NEW DELHI -- India's Ministry of Finance has said the 5% service tax due to be levied on advertising agencies and consultants, courier firms and radio paging companies, will be enforced from this month.

Newspapers and electronic media like TV and radio are exempt from paying the tax, which is charged only for services, the ministry clarified. Introduced early this year in the country's 1996-97 budget by the centre-left ruling United Front coalition, imposition of the tax was postponed because of confusion over who was to pay.

The government clarification puts an end to the intense but unsuccessful lobbying efforts of the Bombay-based Advertising Agencies Association of India, which claims the tax will increase paperwork and eat into the already meagre profit margins of the $1bn billings ad industry.

Payable every month, the tax will not be charged on agency remuneration for space bought in newspapers or time on TV and radio, but on amounts charged to clients for creative, production and other non-media buying functions.

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Copyright November 1996, Crain Communications Inc.

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