SERVICE TAX ON SPORTS ACTIVITIES - THEN AND NOW- PART-I

[Dr. Sanjiv Agarwal]

Sport activities could be a huge revenue churner for the country but if the  tax collectors so want.  IPL season III is back in town and there is lot of hulla gulla about it - on streets, on TV channels, in FM radio and in almost every home. But this time, is it going to bring cheers at North Block too? Why? What's new about it? Who is smart - IPL team or North Block team! Let's see what's the hot news on sponsorship of events like cricket twenty 20 IPL league. Apart from sponsorships, there are going to 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 simple watchers of what they are going  to miss - a hefty service tax collection just because IPL is happening now and not later.

It may be noted that sponsorships other than sports are already covered under the service tax net w.e.f July 2006 and as such, those will continue to be taxed. Also, service tax on activities and services such as advertisement, business auxiliary services, business support services, sale of time or space for advertisement, broadcasting services, insurance related services, security agency services, outdoor catering, event management etc- all  will continue to be taxed in respective categories of taxable services. It is expected that Central Government may be able to garner indirect tax (service tax) to the tune of about rupees one hundred crore from lPL 3. It is worth nothing that while IPL-I which was hosted in India fetched about Rs 80 crore, IPL-2 could not generate much revenue as it was hosted outside India in South Africa. From the present edition of IPL, now going on, it is expected that the Government could realize over Rs 100 crore as service tax. Had it being played in May-June, it could have fetched another Rs 100-150 crores of service tax revenue coming from sponsorships, brand endorsements and promotion.

Finance Bill, 2010 (Union Budget 2010-11) has brought in certain changes in the scope of service tax. For a mega event like ongoing IPL which has started last week (12.3.2010), the new services which would impact from a notified date after the enactment of Finance Bill, 2010 are as under -

Brand Promotion

Services of promoting of a brand of goods, services, event, business entity etc is now proposed to be under service tax net from a notified date (not now). According to new clause (zzzq) of section 65(105) of 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 where in 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 Sahara (Indian Cricket team), Kingfisher (IPL team), Airtel, Vodafone etc engage in such services wherein brands etc are promoted. Presently, if a brand is promoted without any reference to goods or services (like Tata's campaign of jago grahak jago , or ideal cellular ), disputes were raised on taxability of such activities. Any such endorsement which 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 charge substantial amount under an agreement and escape service tax which may not be possible now.