To facilitate the advertising industry, the Central Board of Revenue (CBR) has issued special procedure for collection and payment of sales tax by advertising agencies. The CBR on Saturday issued SRO 872(I)/2004 to insert a new chapter (XV) in the Sales Tax Special Procedure Rules 2004.
The CBR has announced that the past liabilities in excess of the tax payable on commission received by an advertising agency during the last three years have been exempted. The additional tax and penalty accrued due to non-payment of tax has also been waived in case the advertising agency obtains sales tax registration by November 15, 2004.
The advertising agencies have also been allowed to offset the amount of input tax paid by them on account of taxable purchases, imports and utilities like telephone (excluding mobile phones), gas, and electricity consumed for furtherance of taxable activities. They have to fulfil conditions laid down under section 73 of the Sales Tax Act.
However, no input tax adjustment shall be allowed against the purchase invoice, or bill of entry/utility bill, which is not in the name of advertising agency or does not contain its registration number.
Official sources told Business Recorder that the advertising agencies primarily provide technical assistance to their clients and act as a serving bridge between printers and clients on commission basis. Hence, they have been arguing that the industry should pay sales tax on commission charges only. As there was no procedure to regulate the payment of sales tax on commission charges, these agencies were practically paying no sales tax against the supply of advertising materials to their clients.
Resultantly, contravention cases were made out against some of the advertising agencies, whereas the department also demanded sales tax payment against the entire value of supply. The agencies accordingly approached the CBR for redressal of their grievances. On the request of the concerned association, the CBR has issued procedure for these agencies to remove their hardships.
The new procedure requires every person engaged in advertising business, including making arrangement or supervising the supply of printed material to the clients on commission basis, to get registered with the sales tax department.
Every advertising agency shall charge, collect and pay sales tax on the total value of printed and promotional material inclusive of its commission. Provided that in case of an advertising agency getting the printing job done through a registered vendor or printer, shall be liable to charge, collect and pay sales tax to the extent of the commission charges only.
As per procedure, the advertising agency which is providing or rendering taxable as well as non-taxable supplies, can claim only such proportion of input tax as is attributable to the taxable supplies.
The advertising agency, while making supply of printed material to its clients in the manner as aforesaid, shall issue a sales tax invoice and each such invoice shall indicate the amount of charges agreed to be received from client on account of agency's commission and the sales tax chargeable thereon.
Every registered advertising agency using computerised accounting system may issue a computer generated sales tax invoice and keep record on the computer in the prescribed format. They shall file monthly return and declare its total purchases.
As far as audit is concerned, the audit of the records of advertising agency for verification of correct payment of sales tax on monthly basis shall be conducted once in a year. Provided that in case the Collector has information or sufficient evidence that any advertising agency is involved in tax fraud or evasion of tax, he may authorise Assistant Collector to conduct an inquiry or investigation.
The concerned association of advertising agents shall be responsible to ensure that all advertisers engaged in the aforesaid business are registered and pay sales tax in the manner specified in these rules and in case of non-compliance by any advertising agency, the association shall actively assist the concerned Collectorate of Sales Tax for enforcement and recovery of sales tax due under the Act.
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