Budget 2015-16: 10% WHT likely on advertisement income

Tax on media houses aimed at generating Rs5b during new fiscal year

ISLAMABAD:

In a novel move, the government may impose 10% withholding tax on the income of newspaper and television news channel organisations that they earn from advertisements. The step is aimed at raising at least Rs5 billion in additional revenues for the new fiscal year.

At present, income from advertisements, which is the single largest source of earnings for media houses, is exempted from withholding taxes.

However, tax authorities have proposed that the exemption should be withdrawn from the new fiscal year, beginning on July 1.

Prime Minister Nawaz Sharif is also said to have cleared the budgetary measure, which will be now tabled in front of the federal cabinet on June 5 as part of other taxation measures, said sources in the Ministry of Finance and Revenue.

Under section 153(1) (b), the government charges 10% withholding tax on payments of goods and services from individuals and 8% from companies.

Through a special provision, the advertisement income is exempted from this levy. The Federal Board of Revenue (FBR) claims that this “special treatment” is a distortion in the tax system.

The proposal has been floated at a time when there is growing competition among industry players for claiming maximum share of a limited cake. The entrance of new players in the industry is going to thin out the advertisement budgets of the companies.

Due to the cautious approach adopted by media houses that often protect their major revenue spinners, companies are not increasing their advertisement budgets despite phenomenal increase in their earnings, according to market experts.

According to the FBR’s calculations, the total declared advertisement expenses by the companies amount to Rs111 billion. The FBR claims that the companies are under-declaring their advertisement expenses by Rs39 billion.

Two-thirds of the total advertisement budget is treated as sales promotions – an expense incurred on the advertisement agents and promotional schemes.

The FBR has estimated net advertisement expenses at Rs50 billion including expenses on billboards. The sources said the FBR wanted to take Rs5 billion away from this Rs50 billion pie.

Telecom companies are incurring around Rs10 billion expenses on advertisement, followed by banks and other conglomerates dealing in consumable goods.

Advertisement agents

In order to fully capture incomes earned by advertisement agents from sales promotion businesses, the government may also enhance tax incidence on advertisement agents by one-third, said sources.

They added that withholding tax on advertisement agents may be increased from 7.5% to 10% in the new budget.

In the last budget, the government had increased the tax rate on advertisement agents from 5% to 10%, but later reduced it to 7.5%. The government is increasing the tax burden on advertising agents on the pretext that commission agents are taxed under the final tax regime at the rate of 10% on commission paid.

Taxes on cars

Sources added that the government may lower withholding tax rates on the transfer in ownership of vehicles.

In the last budget, the government had introduced withholding taxes in the range of Rs10,000 to Rs450,000, depending on the engine capacity and whether the buyer is a income tax filer or not.

The taxes were introduced on up to five-year old vehicles and are reduced by 10% each subsequent year.

The provincial governments had objected over heavy taxation on transfer of vehicles and complained that people had stopped transferring vehicles under their names to avoid taxes. This also created problem for law enforcement agencies in tracing the real owners of the vehicles, they added. 

Published in The Express Tribune, June 3^rd, 2015.

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