Warc Blog

Service tax hits India's digital ads

11 July 2014
MUMBAI: India's advertising industry has accepted that online and mobile advertising will in future be taxed at a similar rate to TV advertising, although some observers warned that social media was a grey area that needed to be clarified.

In the new government's first budget, finance minister Arun Jaitley announced that a 12.36% service tax would apply to digital advertising, although print media will remain unaffected.

Agencies generally appeared to feel that their digital business would continue to increase and would not be affected by the tax levy. "We are now a grown-up industry," Mahesh Murthy, founder and CEO of online marketing and ad agency Pinstorm Technologies, told indiantelevision.com.

Nor did Preetesh Chouhan, vp/APAC at video advertiser Vdopia, envisage the tax affecting how brands allocated their digital media spends. He even argued that the tax "could be a good opportunity to see if we have made the final transition from niche to mainstream advertising".

Others were more cautious, however, feeling that online display could be hit as advertisers' budgets had already been fixed. Opinion was divided on whether this would prove a temporary blip or something more serious. Suveer Bajaj, co-founder of the Foxymoron digital agency, was in the latter camp.

"Online and digital advertising in India is fairly nascent, [so] this move might discourage new entrants to the industry and allocation of spends towards digital marketing, "he said. "The speedy rate at which the industry was evolving now faces a setback."

Taxing digital advertising could also lead to more money being diverted into social media in the form of content and apps. But Murthy suggested that it was not always obvious what constituted advertising here.

"Is a Facebook post by a brand an ad?" he asked. "What about a tweet by an influencer? What about native content-driven solutions being used by sites like Buzzfeed?

"I believe the definition of what exactly constitutes digital and mobile advertising would help a lot," he added. "Right now there isn't any clarity."

Some agencies welcomed the move for prosaic reasons. "Billing complication is reduced as we don't need to raise different bills for media cost and commission," said Sabyasachi Mitter, managing director of online digital agency ibs. "Also, reconciliation becomes easier."

Data sourced from indiantelevision.com; additional content by Warc staff

 
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