Last week, the Ministry of Finance addressed a seemingly innocuous letter to the Indian Newspaper Society. Written by the Director (Budget) in the Department of Revenue, the letter informed newspapers they were liable to deduct tax at source on advertisement revenues from advertising agencies. It said, “the Central Board of Direct Taxes has arrived at the view that the payment made by the newspapers to advertising agencies is covered by the term ‘commission or brokerage’ given in section 194H of the Income-Tax Act, 1961.”
Gratuitously, the letter added: “However the newspapers may, if they hold a contrary view, contest before appropriate appellate authorities any order under section 201 (1) or 201 (1A) passed by an income-tax authority.”
There are several thousand newspapers in this country. And there are probably as many Income Tax Officers. But before you begin to imagine the chaos likely to be engendered by such perverse reasoning as offered by the Finance ministry in its letter of last week, and the resultant cacophony of appeals before appellate tribunals, consider these facts:
l An advertising agency acts for the advertiser, not the newspaper. It creates an advertisement at the behest of the advertiser, and releases it for publication to a newspaper on the advertiser’s instruction. It bills the cost to the advertiser, and receives payment from the advertiser. And such payment is liable for deduction of tax at source. Is tax now to be deducted twice?
l The advertising agency and the newspaper have a principal-to-principal relationship. The advertising agency is obliged to pay the newspaper within a stipulated period, whether or not it has received corresponding payment from its client. Indeed, it is the advertising agency that pays newspapers, and not the other way round as the department of Revenue seems to believe.
l The advertising agency is not an agent of the newspaper. It has no authority, either express or implied, to take any action on behalf of the newspaper. It is entitled to a trade discount from the newspaper, but that is such as would be available to any bulk advertiser, including the government.
l The Act and the relevant section have been in existence for several years. Why now would the Government feel obliged to re-interpret its provisions?
The answer is available in part in the gratuitous advice tendered by the Director (Budget). If you disagree, go and argue your case before the appellate authorities. Already, Income Tax authorities have initiated action on the basis of their re-interpretation of the statute. Several Kolkata newspaper companies, ABP, Bartaman and Aajkaal among them, are under the taxman’s scanner. Elsewhere, too, newspapers are receiving notices from their friendly, neighbourhood taxman. The attack has been well and truly launched, the objective, it seems, is to bring newspapers to their knees.
But is this only an isolated instance, one of those nutty perversions that our lawyer-turned-economist finance minister is prone to inflict on the citizenry without it being part of a bigger plan? Think again.
Earlier this year, the Government announced a new advertising policy for Public Sector Undertakings and autonomous bodies. These bodies were told to route all their advertising through the Directorate of Audio-Visual Publicity and, more important, at DAVP rates which traditionally are a fraction of a newspaper’s commercial rate.
This is supposed to be a liberalised economy. Government swears it will provide a level playing field to all enterprises, public and private. And yet, Government comes up with this bizarre policy which will mean, in effect, that while Jet Airways will pay commercial rates, Indian Airlines will claim subsidized rates; the body managing Delhi and Mumbai airports will pay commercial rates, while the one managing Kolkata will claim subsidised rates; Reliance Petroleum will pay commercial rates, while ONGC will claim subsidised rates; Titan will pay commercial rates, while HMT will claim subsidised rates.
Does this make any sense? Is this reform or regression? Can there be any motive other than to browbeat newspapers into submission?
But is this all? Not by a long shot. Spearheaded by two ministries ~ finance and information and broadcasting ~ the government has been targeting newspapers relentlessly over the past few months.
As part of its new media policy, Government decided that its advertisements would be released to newspapers having a circulation of more than 75,000 copies only if they had ABC certification. There was no such restriction on newspapers having a circulation of less than 75,000 copies. They could, as in the past, submit certificates issued by a chartered accountant.
ABC is a private body, controlled by newspapers, advertising agencies and advertisers. It has nothing to do with government. At no place does the Press and Registration of Books Act make any mention of ABC. The Registrar of Newspapers, a statutory functionary, does not insist on ABC certification. Why then must DAVP? Is the move aimed at ensuring transparency in Government advertising? Or is it meant only to further pressurise newspapers, especially when several of them have expressed disenchantment with the ABC process?
The policy also said that a newspaper would have to be in continuous existence for three years before it qualified for Government advertising. Earlier, a newspaper was required to publish for six months before becoming eligible. Any management consultant will tell you that it takes a newspaper from three to five years to break even. What could have been the objective of the change? To ensure that new ~ and hence potentially critical - newspapers die before they become eligible for Government advertising?
The Government has done much more to target the Press over the past year, sometimes stooping to ridiculous extremes. Readers would have seen half-sheets in their newspaper, whenever the page level is not a multiple of four. Thus a 14 page newspaper would use three full sheets and one half-sheet, and an 18-pager would use four full sheets and one half sheet.
The Customs authorities decided early this year that while a full sheet constituted newsprint and could hence claim concessional duty at the rate of 5.5 per cent ad valorem, a half-sheet was not newsprint and was liable to be charged 35 per cent duty! A full delegation of the Executive Committee of the Indian Newspaper Society had to meet the Prime Minister in order to get this idiocy reversed. And even now, the amendment in rules has been made prospectively, with claims still pending against those newspapers that were forced to pay the higher duty in the months it took for Government to realise just how silly it was being.
Gandhi’s Congress died with him. Nehru’s Congress died with him. It is Indira’s Congress that survives under Sonia Gandhi, a party that thrives on sycophancy and hates criticism. But the Congress of Indira and Rajiv targeted the Press directly, attacking its freedoms, and hence could be rebuffed. Sonia’s Congress has learnt its lesson. Censorship and Defamation Bills are bound to be resisted; hence the best way to tame newspapers is to hit them where it hurts, through duties and taxes, through attacks on their revenues, through discriminatory practices. And if newspapers feel aggrieved, they can always agitate before appellate authorities!
This Mrs. Gandhi’s government is acting ruthlessly, deviously and with malice aforethought, using as its instruments a Prime Minister and two ministers who would not be where they were if they possessed the backbone to resist what is patently wrong. The Press is under attack!
