Cricket lovers who want to enjoy the atmosphere of an Indian Premier League (IPL) match in the stadiums this season might have to shell out more while buying a ticket, or even team merchandise for that matter. That is because the finance minister has tightened the screws on sporting activities by imposing some stiff clauses.
According to the Finance Bill 2010, service tax will be levied on “service of permitting commercial use or exploitation of any event organised by a person or organisation”. In another salvo at the tournament, the Bill states: "The exclusion relating to sponsorship pertaining to sports is being removed.” According to Mumbai-based law firm Economic Law Practice, IPL will also have to pay service tax on the broadcasting rights it has sold to various television networks.
Onus is on making money, not losing it
B Vanchi, Delhi Daredevils' advisor on corporate strategy, says: “Bringing IPL into the service tax net will not have any impact on us because, as a team owner, we will pass it on to team sponsors and on the prices of tickets and merchandise.”
Likewise, sources in Kolkata Knight Riders (KKR) said bringing the team’s earnings into the tax net would mean the economics of the trade would be passed on to other stake holders. “We cannot absorb this cost. So, the additional costs would have to be passed on. Negotiations would make rounds and either the contract value with sponsors will go up or it could come down to accommodate the tax. We do not know for sure as yet,” a KKR source said.
On how the levy of a 10 per cent service tax would affect the revenues of IPL, BCCI’s Finance Committee Chairman Rajiv Shukla said: “We are studying the issue now and would take a call later.”
A Mumbai-based media and entertainment analyst with a leading broking house said: "Service tax is easily passable from the seller to the buyer. So, either the TV network that has bought the rights might be asked to make a higher payout for renewal of the contract in the coming years or IPL might be forced to absorb it in case there aren't enough takers for the rights. Similarly, IPL may charge Rs 550 instead of the Rs 500 (the lowest ticket rate for any IPL match, including the Rs 50 service tax) if it does not absorb the service tax."
A spokesperson of Chennai Superkings told Business Standard: “We are still evaluating. But of course, we will not make losses. We have to look at how to make money every season.”
| GAME FOR TAX Other televised events that will attract service tax |
| # Games of chance, including lottery, bingo or lotto in whatever form or by whatever name. Also covered are games of chance conducted through the internet or any other electronic networks. IMMEDIATE BEARER: Idea National Bingo Night on Colors channel. |
| # Company-sponsored music concerts, film award events, beauty contests. IMMEDIATE BEARER: Filmfare Awards, Stardust Awards, Screen Awards, etc. |
Sponsorships affected, too
The Finance Bill also seeks to levy taxes on sponsorship revenues, which were until now excluded from service tax. Spokespersons of Pepsico and Reebok, said: “There would be negotiations on the table. But the exact impact is not really clear at this point.”
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According to media research agency TAM, the market size for sports sponsorship in India is approximately Rs 3,500 crore.
Jehil Thakkar, head of media and entertainment business, KPMG, said: “There would be no major difference on the IPL team-owners, as lots of these costs would be passed on. Team sponsorships will also not suffer because they, in turn, would pass on the costs. So ticket prices and the sale price of merchandise could be a little more expensive this year when compared to last year.”
Another trade analyst, on condition of anonymity, said: “For teams or sportspersons in demand, sponsors would be ready to pay a premium to accommodate the taxable amount. Although negotiations would be on, it is unlikely that teams or sportspersons will settle for less than what they are already earning.”