The P2P or P2A nature of advertising agencies in case of Print media
The Central Government has issued a press release (reproduced hereunder – Annexure
A) in relation to GST on print media billing by advertising agencies in response to queries raised by the advertising agencies and advertisers. In this article, we have attempted to analyze the impact of the clarification on advertising agencies and publications.
The clarification given therein requires the agency to decide whether it is working on a Principal to Principal (P2P) basis or on Principal to Agent (P2A) basis. This decision will affect its billing pattern.
P2P Basis –
P2P basis essentially means that the agency has purchased print media space on its own account and then resold the space to an advertiser, somewhat akin to a trader who buys goods at X price and resells the goods at (X + n) price, or even lower, depending on market forces of demand and supply. Thus, vis-à-vis the advertiser as well as the publication, the agency acts as a principal, entitled to and responsible for the profit or loss, as the case may be, on the transaction.
If the agency works on a P2P basis, it appears that the commission component is not required to be disclosed separately on the invoice issued by the agency. The inward and outward bills would look like this –
| Inward bill from Print/Publication | |
| Being Print media space…, date… edition… | 85.00 |
| GST @ 5% | 4.25 |
| Total including GST | 89.25 |
| Outward bill to the client | |
| Being release of advertisement in Print media space…, date… edition… | 100.00 |
| GST @ 5% | 5.00 |
| Total including GST | 105.00 |
Subject to rules in this regard, the advertisement agency would take the input tax credit of Rs.4.25 being the tax charged by the publication to discharge its output tax liability of Rs.5.00 as under –
| Gross output tax liability | 5.00 |
| ITC available from publication | 4.25 |
| Balance GST paid by cash | 0.75 |
Thus, operations for an agency, if it works on a P2P basis become easy and uncluttered.
However, one operational matter still remains. Most of the advertisers may insist on Commission being disclosed separately in the agency invoice. Hence, not disclosing commission on the invoices may not be an option for some agencies.
On the other hand, showing ‘commission’ separately on the invoice, could be taken by the department as a P2A transaction resulting in a tax demand of 18% on the commission component.
P2A Basis –
In a situation where the agency works on a P2A basis, going by the clarification issued by the government –
- The Publication will raise an invoice of Rs.100/- on the agency and charge GST of Rs.5/- on Rs.100/-,
- The agency will bill exactly Rs.100/- to the advertiser (i.e. the client) and recover the GST @ 5% on the same.
- The agency will raise an invoice for its commission, say Rs.15/-, on the publication, and charge GST @ 18%. i.e. Rs.2.70, on such commission.
- The publication will take Input Tax Credit of the GST charged by the agency against the output liability of Rs.5/-.
The inward and outward bills, in this case, in agency’s books would look like this –
| Inward bill from Print/Publication | |
| Being Print media space…, date… edition… | 100.00 |
| GST @ 5% | 5.00 |
| Total including GST | 105.00 |
| Outward bill to the client | |
| Being release of advertisement in Print media space…, date… edition… | 100.00 |
| GST @ 5% | 5.00 |
| Total including GST | 105.00 |
| Outward bill to Publication for commission | |
| Being commission due … | 15.00 |
| GST @ 18% | 2.70 |
| Total including GST | 17.70 |
Subject to rules in this regard, the advertisement agency and the publication would take the input tax credit of their respective taxes as under –
| Publication | |
| Gross output tax liability | 5.00 |
| ITC available from agency on commission paid | 2.70 |
| Balance GST paid by cash | 2.30 |
| Agency – in respect of Commission | |
| Gross output tax liability | 2.70 |
| Direct ITC available in respect of Commission | Nil |
| Balance GST paid by cash | 2.70 |
This method raises a few questions –
- Firstly, whether an agency can function on a P2P basis in respect of some clients and on a P2A basis in respect of other clients?
The press release clarifies that all would depend on the agreement. While we agree with this, it should be noted that most of the media agencies would have fashioned their existing agreements on a P2A basis because under Service tax regime, this was the norm. Such agreements would have to be modified to reflect the correct position if necessary. Theoretically, it would be possible for an agency to work on a P2P basis with one client and P2A basis with other client depending on the terms of appointment or contract with the client.
- Whether an agency can function on a P2P basis in respect of some releases or some publications and as a P2A in respect of other releases or other publications?
In cases where an AOR agreement is not in place, especially in case of small and medium size agencies, the agency may have to work on P2P or on a P2A basis depending on the ‘client-agency-publication’ relationship which is mostly dynamic in nature. Taking one stand or the other on a permanent basis may be a difficult decision for the agency, given the ever-changing nature of the relationships.
- Once the P2P or P2A stand is taken by an agency, can the agency change its stand subsequently?
Again, the relationship of Client and Agency may change based on specific needs of the clients or the publications. Since the change in an agency’s stand on P2P or P2A would result in different tax liability, the change in stand should be accepted by the GST department as well.
- On a practical note, whether the situation of the agency billing the publication for commission (except volume incentives) will arise in the regular course of business? When the Commission is to be recovered from the advertiser, i.e. the client, as is the normal case, why would the agency raise an invoice on the publication?
In the general course of business, the agency always bills the client to recover its commission. It is only in case of volume based incentives that the question of raising an invoice on the publication arises. In fact, in the Service tax regime, such volume incentives were more often settled by way of Credit notes issued by publications and invoices were not raised even then. Even in case of media concessionaires, the commission due to the concessionaire is recovered from the client (advertiser) and not from the publication. Moreover, if commission is deemed to be received from the publication, the question of TDS on commission would arise.
While GST is a welcome reform, one hopes that the department clarifies on the intricacies of law to address such grey areas thereby ensuring proper compliance. Questions or comments of readers on this article are welcome.
Dipen Lathi.
Chartered Accountant.
www.Lathico.com
DISCLAIMER : No assurance is given that the revenue authorities/ appellate authorities/ courts would concur with the views expressed herein. Our views are based on the existing provisions of law and our interpretation thereof. We do not assume responsibility to update the views consequent upon such changes, if any. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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© Dipen Lathi
MMXX
Annexure A Press release
8/23/2017 GST on Selling of space for advertisement in print media – Clarification regarding.
http://pib.nic.in/newsite/PrintRelease.aspx 1/1
23-August-2017 16:58 IST
Press Information Bureau
Government of India Ministry of Finance
GST on Selling of space for advertisement in print media – Clarification regarding.
Query has been raised regarding GST applicable on selling of space for advertisement in print media.
Selling of space for advertisement in print media is leviable to GST @ 5%.If the advertisement agency works on principal to principal basis, that is, buys space from the newspaper and sells such space for advertisement to clients on its own account, that is, as a principal, it would be liable to pay GST @5% on the full amount charged by advertisement agency from the client.
Illustration : If newspaper sells a unit of space worth Rs. 100/- to advertisement agency for Rs. 85/- (after a trade discount of Rs. 15/-), the advertisement agency sells the same unit of space to client at Rs. 100/-, newspaper would be liable to pay GST @5% on Rs. 85/- (=Rs. 4.25/-), and the advertisement agency would be liable to pay GST on full value, that is, Rs. 100(=Rs.5/-) and may utilise ITC of Rs. 4.25/- for payment of the same.
On the other hand, if the advertisement agency sells space for advertisement as an agent of the newspaper on commission basis, it would be liable to pay GST@ 18% on the sale commission it receives from the Newspaper. ITC of GST paid on such sale commission would be available to Newspaper.
Illustration: Advertisement agency sells unit of space to the client not on its own account but on account of newspaper for Rs. 100/- and receives commission of Rs. 15/- for such sale from the Newspaper. In such a case, advertisement agency shall be liable to pay GST @ 18% on the sales commission of Rs. 15/- (=Rs. 2.7/-), ITC of which shall be available to newspaper for payment of GST @ 5% on Rs. 100/- (value of space for advertisement sold by the newspaper).
However, if the advertisement agency supplies any service other than selling of space for advertisement, such as designing or drafting the advertisement, and such supply is not a part of any composite supply, the same would be liable to tax @18%. If such supplies are part of any composite supply, the rate applicable for the principal supply shall apply.
Therefore, everything depends on the terms of the contract between the newspaper, advertisement agency and the client.
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DSM/SBS/KA