VAT Treatment for goods distributed as

While driving back on Thursday afternoon, I got a chance to enter a radio show competition and luckily won two tickets for an entertainment show. Yay!!! But this also made me wear my thinking cap and analyze about the VAT treatment for such goods (& tickets) distributed as ‘gifts’ during such radio shows. Whether the provider of such gifts would be entitled to recover VAT on procurement of such goods/tickets which are distributed as gifts during radio shows or not?

I think this gift distribution during radio shows can have two aspects. For our analysis, let’s assume that the radio show network is owned by “ANG Group”.

• Gifts and tickets given to radio show winners are sponsored by some third party and ‘ANG Group’  - the owner of the radio show network is a mere distributor of gifts. In this case, the likely treatment should be no VAT implications for ANG Group for prize distribution, considering the fact that ANG acts as a mere distributor of gifts and tickets on behalf of third party. The group is not paying anything from its account for such free of charge transaction happening between the radio show winner and the third party.
• Second aspect is more interesting where the gifts and tickets are procured by ANG Group on payment basis from third party and then given away as ‘gifts’ to winners during radio shows. Most likely, this also would not have any VAT implications for ANG Group at the time such gifts are given to winners. This is because the distribution of gifts is a part of the promotional activities of the radio station owned by ANG Group. The purchase of goods for free distribution to listeners is a marketing activity and would not qualify as deemed supply.

Further, ANG Group would not be required to repay any VAT on such goods which was recovered earlier. Reason being such expense incurred by ANG Group in buying goods for free distribution as gifts during radio show contests is a kind of marketing expense for the promotion of its radio channel. Such events lead to an increase in its listener base, thus enabling ANG Group to generate more revenue as more suppliers would like to advertise their products and services. This results in an increase in revenue from an increase in sale of advertising space during the shows. Such expenses relate to taxable supplies made by the Group and contribute directly to the same.

There can be an alternate view in the above discussed second scenario that goods purchased for prize distribution would be treated as deemed supply if ANG Group takes credit of input VAT. If no input VAT was ever recovered, then it will not be treated as deemed supply.  But logically, ANG Group should be entitled to recover/deduct input VAT incurred on procurement of goods which are distributed as gifts during radio shows.

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