The Hindu Business Line : `Celebrity tax' puts cos, ad agencies in a bind

At stake is endorsement fee that ranges between Rs 5 crore and Rs 10 crore per celebrity per contract, with the most expensive endorsers being Amitabh Bachchan, Shah Rukh Khan, Sachin Tendulkar, Aamir Khan and Aishwarya Rai.

Industry representatives indicate that it is inevitable for corporates to rework contracts with their brand ambassadors, in accordance with the Central Excise department's notification to bring brand ambassadors under the service tax net.

Advertisers are, in any case, liable to pay an 8 per cent service tax.

However, as a tax consultant pointed out, "Whether the star ambassador actually contributes to increasing the company's sales is open to interpretation."

The industry norm is that contracts are generally made exclusive of the tax liability so that the tax burden is footed by the corporate, not by the brand ambassador.

Said Mr Abhiram Seth, Executive Director, Exports & External Affairs, PepsiCo India Holdings, "Typically, if there are any tax levies, the company will pay up."

PepsiCo perhaps has the largest number of celebrities endorsing its brands including Shah Rukh Khan, Sachin Tendulkar and Kareena Kapoor.

PepsiCo's contract with Bachchan has ended, but is likely to be renewed in due course.

Among Shah Rukh Khan's other multi-crore accounts is that with Hyundai Motor India Ltd.

While terming the issue of reworking the contract with Shah Rukh as an "internal negotiation matter", Mr B.V.R. Subbu, President, Hyundai Motor India Ltd, said, "We will do whatever is correct by the tax laws."

On the other hand, it is learnt that some corporates such as Dabur India generally frame their contracts inclusive of the tax agreement. In other words, the tax liabilities are generally borne by the celebrity.

When contacted by Business Line, Dabur India's spokesperson declined to comment, stating that the company was bound by a confidentiality clause.

Dabur had recently inked a deal with Amitabh Bachchan to endorse its chyawanprash brand for an estimated Rs 8 crore.

Ad agencies are, meanwhile, playing it safe. Said Mr Rajesh Pant, CEO, Percept-H, which deals with several celebrities from the cricketing and movie world, "The question of the agency having to bear the service tax does not arise. It is a cost that will have to be borne by either the client or the endorser."

Among other brands, Percept has handled the Reid & Taylor account, which now uses Bachchan as its star ambassador.

While Bachchan's current contracts include PepsiCo, Nerolac Paints, Dabur, Reid & Taylor, Parker Pens, Maruti and ICICI, Coca-Cola has Aamir Khan and Aishwarya Rai as ambassadors.

Besides PepsiCo and Hyundai, Shah Rukh endorses Tag Heuer watches, Aishwarya Rai is among Longines' star ambassadors, and Tendulkar's other big-ticket clients besides Pepsi are Fiat, MRF and Britannia.

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