Although many of us would like to believe that the mobile and online advertising in India is still in its nascent stage, the Union Finance Minister of India, Arun Jaitley likes to think otherwise. In the recent Indian budget, Arun Jaitley gave a jolt to the digital advertising industry by announcing the inclusion of this sector in the service tax net, whereas, the print media will continue to enjoy the exemption from service tax.
As the digital advertising moves out of the negative list of service tax, which it enjoyed till now – experts have become increasingly concerned about the outcome of this move. There is a common fear that this move will hurt this fast-growing industry, which is believed to be valued at INR 29 billion by the Internet and Mobile Association of India (IAMAI).
Two years back, the online advertising sector was included into the negative list, which signalled the support for the expanding industry. This exemption was expected to last for a period of 3 to 5 years, which is normally the case. Therefore, this news has come as a bitter surprise.
In a speech delivered by Arun Jaitley, he announced 12.36 per cent service tax on digital advertising, online and mobile. It enjoyed tax exemption along with print media till now while television and radio were under the tax net. Since online and mobile advertising is still a fledgling sector in India, bringing it under the service tax umbrella is an unwelcoming move. On the other hand, it may seem like the government is giving more attention to the internet, a positive move.
As India is expected to move from 2G to 4G in the next three years adding 400 million more mobile internet users, it is imperative to push higher consumer adoption of digital aggressively, which can be affected by this service tax. China has over a trillion USD worth internet economy, a behemoth figure in comparison to the nascent stage of Indian digital advertising. Given this fact, it was expected that the digital advertising will be given some breather for a little more time to come to help drive the innovation and adoption.
The high penetration of mobile devices and consumption of apps in India are currently fuelling the mobile advertising growth. The entire ecosystem of start-ups from mobile development field, publishers and advertisers could be affected by this move. Even though the budget seemingly lends a helping hand towards SMEs and entrepreneurs, including digital advertising under tax is still a concern, which is likely to negatively impact.
However, some believe that the move will not impact to large extent as the organic growth of users is likely to expand at an accelerated rate. And, marketers will continue to allocate digital media spends. Some also believe that the tax may be a small price to pay and may even make marketing expensive than before for e-commerce companies and clients. However, this move may be in the right direction by treating digital advertising as mainstream, a sign of maturity.