Plans for 5% advertising tax threaten Indian industry

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NEW DELHI -- India's government has imposed a 5% tax on advertising in this year's Union Budget, in a move which could cripple the $1bn ad industry. "The tax of services has come to stay," finance minister P. Chidambaram Chettiar told members of Parliament in New Delhi at the Budget presentation on July 22.

"With a view to widening the tax base, I propose to bring advertising services, radio paging services and courier services under the tax net. The tax on these services will be at the rate of 5%."

The new taxes will collectively raise $43m for the centre-left United Front administration headed by Prime Minister H.D. Deve Gowda.

But the minister did not elaborate on whether the advertising tax would be levied on ad agencies, advertisers or the media. A levy on agencies would seriously challenge the viability of the industry.

"It is typical of the government. They haven't told us who has to pay the tax. As usual, the tax authorities will ask us to sort out the matter among ourselves, as long as they get their 5%," a spokesman at the Advertising Agencies Association of India, Bombay, told the Daily World Wire.

Copyright July 1996 Crain Communications Inc.

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