In 2014 Finance Minister Arun Jaitley brought sale of space or time slots for ads on online and mobile platforms under the ambit of service tax. Mid last year a 6 per cent equalisation levy that would be applicable to services received by a non-resident not having a permanent establishment in India from an Indian resident who carries out the business. With every such move, digital advertising got more expensive for Indian advertisers and affected the growth of the digital marketing industry as a whole.
In the run up to the Union Budget, we asked experts in the field of digital marketing to share with us their insights on the impact of service tax on the industry and their expectations from the budget. With the backdrop of demonetisation and the third year of taxing online and mobile advertising, industry leaders and experts sought a fillip for the industry in terms of taxation incentives, a uniform tax code and clarity on the taxation policy and regulations.
Ashish Shah, CEO and Founder, Vertoz Media said that spending on media takes a hit when taxes are levied, stifling growth of the industry. “Media plays an integral part in the growth of emerging markets. Since October 2014, when service tax was levied on the online industry, growth has been slow and steady. It is primarily due to the technological innovations, infrastructure and globalization. In the era where the current government is advocating digitalisation, it is important to revisit the tax implications to this industry and revive the growth in proportion to awareness and its necessity,” he said.
Dingra echoed the thoughts of Shah, he said, “If we really want to enable small and young entrepreneurs and start-ups we need to ensure that digital advertising becomes easier, simpler, and cheaper. My expectation is an abolition of service tax on digital advertising, and the option to make the payment to the government when we receive the payment from the client.
Zafar Rais, CEO, MindShift Interactive, pointed out that indirect taxation has affected media budgets. “Equalization Levy on digital ads is one of the recent factors implemented in the past year which has had an impact on the media budgets. We are definitely looking at this reducing or its removal in order to avoid the excess tax payments,” he said.
Industry experts also demanded a uniform tax code which will tax all advertising mediums equally, including print advertising. The print medium is still exempt from service tax, making it the only medium that is not taxed.
“ Not long ago most of the advertising spends by corporates was through print media. Digital advertising budget still forms a small portion of overall ad spends. Applying service tax on digital and not on print is difficult to understand or accept. Ideally, if it’s levied, it should be done for all other mediums of advertising as well, to be fair to all. The government needs to take the initiative for digital as a category to be competitive and to promote the current government’s Digital India initiative. All forms of advertising and communication is the key to the growth of the economy and ideally the government should encourage the industry by levying less taxes.” Veera Ghyara, Co-Founder and Business Head, Webmaffia.
Dingra said that of the various mediums, print and television are established sectors, and that players in these sectors have deep pockets. He reasoned that because of those two attributes of the print industry, levying tax on advertising in print should be considered.