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Indian GP still mired in tax issues ahead of inaugural race

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As Formula One heads toward the inaugural Indian Grand Prix next week, the details of lingering tax implications still percolate. According to TOI, Jaypee Sports International Limited--the organisers of the Indian Grand Prix--have been asked by Uttar Pradesh government to deposit 25% of the ticket sales while they consider the case before them.

The issue at hand is whether the Formula One race is considered "entertainment" or "sport" as the taxation of the race hinges on this classification. The organisers have made a plea that the event is indeed a sport and not subject to taxation as such. They likened it to the Common Wealth Games held in India which enjoyed a tax-free classification as a sport and not entertainment.

India's public relations nightmare with the Commonwealth Games of 2010 was steeped with kickbacks, shadowy off-shore firms, forged emails, inexplicable payments to bogus companies and inflated bills. Jail time, arrests and general skullduggery occurred in many levels of the event. Jaypee Sports International Limited is convicted to making the Formula One race successful but the amount of taxation coupled with import duties and driver salary taxation attempts have left the event with bruised eye already.

Formula One's foray into Asia has been traditionally met with enthusiasm and sometime angst over the readiness of the new purpose-built circuits for the events--often funded by the local governments. India's first-ever Formula One race has been mostly marred by talk of money, farmer strikes for locals who feel put upon by the government's alleged annexation with unfair compensation of their land and the government's insistence on taxing the racing series to its fullest potential.

For Jaypee Sports international Limited's part, they offered to cover much of the duties, taxes and other details in order to get the race underway. As Korea's race organizers have said last week, the cost of hosting a Formula One race is placing them in a loss position and one wonders if Jaypee can absorb the cost imposed by the government and still make a profit for future race sanctioning fees.

Once again, the world's eyes are on India to see if they truly can host an international event without throttling the event through taxation, import duties or worse.