05 March 2018 Sports Breaking Even

Taxing The Broadcast Cherry

A miffed ICC might relocate events from India if not given a tax break. But can it spurn its golden goose?
Taxing The Broadcast Cherry
Sporting Matters
An ICC board meeting in progress in Dubai
Photograph by Getty Images
Taxing The Broadcast Cherry

In 2013, the International Cricket Council (ICC) had allotted India three major global tournaments—the 2016 ICC World Twenty20, the 2021 World Test Championship (this proposed competition was ­later replaced by Champions Trophy), and the 50-over World Cup in 2023. ­India successfully hosted the 2016 World Twenty20, which the West Ind­ies won. But now are the Champions Trophy, and more importantly, the World Cup, slipping away from­ India’s grasp? There is some uncertainty about these tournaments after the ICC recently decided to look for alternate venues, at least for the 2021 Champions Trophy. There is also the Asia Cup, which could be held in India this year, in danger of being rel­ocated, probably to Dubai.

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But why would the ICC not hold its prestigious tournaments in the most luc­rative market for cricket? The reason is an ongoing tussle between the world cricket body and the Indian gover­nment on taxation: The ICC wants full tax exe­mption; the government so far is not budging. Even for the 2016 ICC World Twenty20, the government had not exe­mpted tax for the ICC’s official media rights holder, STAR India and STAR Middle East, and had deducted 10 per cent tax at source (Tax Deducted at Sou­rce, or TDS) from the broadcaster’s rev­enues generated from the tournament.

Before the India-vs-Pakistan World T20 match at the Eden Gardens, 2016

Photograph by Alamy

Now, the ICC is once again making an effort to get full tax exemption. Its officials have reportedly met top-ranking Indian finance officials—to no avail, so far. At a recent meeting of the ICC Board, its members expressed ‘concern’ at not rec­eiving the exemption and directed ICC management to “explore alternative host countries in a similar time zone for the ICC Champions Trophy 2021”.

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When contacted, the ICC admitted that the tax relief was indeed a bone of contention, but said there was still a lot of time to resolve the issue. “The 2021 and 2023 events are scheduled in India, until the ICC Board decides otherwise. It is correct that we are looking for a solution to the tax issue, but for this matter to resolve, we still have plenty of time and I presume the decision will only be made closer to the time,” an ICC spokesperson told Outlook. ICC Chairman Shashank Manohar couldn’t be reached at his Nagpur residence.

According to convention, host nations of ICC events have given it tax exemption. Full exemption was given for the 1987, 1996 and 2011 World Cups and the 2006 Champions Trophy.

It’s germane at this point to ask why the ICC is asking for tax exemption for forthcoming tournaments when it paid tax the last time? In a precedence set decades earlier, host nations of ICC tournaments have typically given tax exe­mption to the world body. Various Ind­ian governments, too, had given full tax exemption to all four ICC tournaments held in India—World Cups in 1987, 1996 (jointly hosted) and 2011 (jointly hos­ted), besides the 2006 Champions Trophy. But, for the 2016 World Twenty20, STAR had to pay Rs 125 crore approximately (10 per cent TDS). Interestingly, the government gave full tax exemption to the recently held FIFA Under-17 World Cup in India.

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The reasons why the ICC is keen to host many tournaments in India is obv­ious. The country is the biggest cricket market in the world and hosting a glo­bal event here is a certain source of huge revenues, not just for the ICC, but also for the Indian government and the aff­iliated state associations of the BCCI. While the ICC gives a handsome amount to state associations hosting mat­ches, the government earns colossal foreign exchange through a variety of sour­ces, including booking of thousands of hotel rooms, entertainment tax via match tickets, tourism and, of cou­rse, various taxes. For the 2016 World Twenty20, the ICC received about $236 million from STAR alone in broadcasting rights.

Some say the so-called BCCI commitment to the ICC that it would be compensated for tax paid for the 2016 World T20 was made as it was eyeing a windfall from the ICC ‘Big Three’ revamp.

Obviously, there is a lot at stake for the ICC to hold tournaments in India. From the 2021 Champions Trophy, it is estimated that the ICC would, at the current dollar exchange rate, get Rs 2,600 crore from the broadcaster. And, if the Centre doesn’t give tax relief, it would receive Rs 260 crore approximately via TDS. The projected income for the ICC from the 2023 World Cup is about Rs 3,890 crore, the government again getting 10 per cent of it (Rs 389 crore). “Even if the government eventually gives the exemption, it stands to earn more revenue than the 10 per cent TDS, through entertainment tax, tourism during these events, hot­els and other sour­ces,” said an observer.

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Of course, it is only convention that led countries to give tax exemption for an ICC tournament, the 2016 ICC Twenty20 being an exception. But the tax issue now seems to have pitted the BCCI and the ICC against each other too. While top BCCI office-bearers were not ready to be quoted, an official explained the genesis of the issue. He claimed that the onus is not on the BCCI to secure the tax exemption, as mentioned in some ICC doc­­uments. He added that a former BCCI office-bearer had “orally promised” the ICC, probably in 2014, that the Board would “compensate” the world body if it didn’t get relief for the 2016 World Twenty20. He even claimed that the ICC has the voice recording minutes of this “ass­urance” on the “compensation”.

“The ICC believes that the tax exemption, which has not been ensured so far for the 2021 Cha­­mpions Trophy, was in the domain of the BCCI as a host for the 2016 World Twenty20. The point is that the hosts have responsibilities that are not verbal; they are laid down in the Host Nation Agreement (HNA), which was signed between the BCCI and the ICC in November 2014, a year-and-a-half before the event, and which is in black and white,” the BCCI official told Outlook. For now, the BCCI seems to have washed its hands of this controve­rsy. The host board of a world tournament signs an HNA with the ICC. But according to a source in the BCCI, who has read the HNA for the 2016 tournament, the document is silent on the issue of tax exemption and it doesn’t compel the home board to the get relief from the government. “The HNA only tells the BCCI to try and get the exemption, using phrases like ‘best endeavour’ and ‘prudent effort’. Also, significantly, it’s not mentioned in any document as to who would bear the cost of the tax—ICC, its media rights holder, or the host Board—in case exemption is denied,” he says.

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The verbal commitment that is being talked about could have been made by N. Srinivasan as BCCI president, even before the HNA was signed, to his predecessor in the ICC, Alan Isaac of New Zealand, simply because the BCCI stood to gain the most from the impending ICC revamp. If November 2014 was indeed the period when the HNA was signed, the ICC chairman was Srinivasan while former India off-spinner Shivlal Yadav was interim BCCI president and Sanjay Patel its secretary at the time. It was an open secret that both Yadav and Patel were close to Srinivasan, who was nominated by the BCCI to the ICC chairman’s post, and who in turn went on to make wholesale chan­ges to the ICC’s governance and fin­ancial structure that sought to benefit the BCCI the most. In the Srinivasan-fuelled changes at the ICC, the BCCI was to rec­eive a lion’s share of the ICC’s income, followed by the England and Australia Boards—that’s why the changes are also called the ‘Big Three’ revamp. The confi­dence for such a generous assurance about ‘compensation’ came mainly because the Indian Board was to receive a colossal amount under ‘Big Three’ revamp.

The ‘Big Three’ changes were, however, annulled by Shashank Manohar when he replaced Srinivasan as ICC chairman midway through his term, after the Ind­ian Supreme Court asked Srinivasan to leave the BCCI while hearing the IPL spot-fixing case. As a consequence, no board, including the BCCI, benefited from the Srinivasan’s ICC revamp idea, even as Manohar got out a new revenue-sharing formula. For the record, the ICC announced venues of its global tournaments from 2016 to 2023 through a media statement on June 29, 2013, at the conclusion of its annual conference the same day in London. In that meeting, chaired by ICC president Alan Isaac, Jagmohan Dalmiya, a standing in for Srinivasan, represented the BCCI.

So, does India really stand to lose hosting the Champions Trophy and the World Cup? Will the ICC take such a drastic step, in a way killing the golden goose? The majority of people involved in the issue, both in the BCCI and the ICC, are confident that it wouldn’t be easy for the world body to relocate the two tournaments from the money-spinning market that India is. “It’s all posturing. If you ask me, the two events will be there where they are [in India],” said an expert about the so-called ICC threat. That may be true, but it does seem the ICC will not give in so easily either. As the stakes involved are so high, this controversy will gallop into the slog overs closer to the date of the tournaments.

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