The digital advertising sector has been the fastest growing medium in the country over the past few years. According to the PITCH Madison Advertising Outlook 2015, digital advertising is now expected to account for 12.6 per cent of the ad spend pie in 2015. The government itself is seen as highly pro-digitization and has in fact undertaken a number of initiatives to realise the 'Digital India' dream.
However, during the interim budget in 2014, the Finance Minister's decision to include digital advertising among the services on which service tax could be levied led to some indignation by digital agencies. “On one hand, they are talking about increased digitisation, e-governance, etc., and on the other hand, they are starting to tax online and mobile advertisers. This dichotomy is disappointing,” said Ashish Bhasin, Chairman & CEO South Asia, Dentsu Aegis Network, had told us back then.
With news that service tax will be further increased to 14 per cent, digital agencies and advertisers seem to have another headache on their hands. What appears to ruffle their feathers is the fact that print (the largest medium in the country in terms of ad spends) still remains outside the gamut of service tax.
“The new government’s maiden budget proposes to levy service tax for online and mobile advertising which we believe will adversely affect the industry’s growth. It reflects differentiated treatment as traditional print media remains unaffected with respect to the tax purview but new digital media that is actually driving innovation will have to unfortunately bear the brunt," says Zafar Rais, CEO of MindShift Interactive.
What is worrying agency heads like Rais is that the explosive growth being seen in mobile advertising, especially with mobile and app penetration increasing could receive a setback. "This development could hamper innovation efforts of the entire ecosystem comprising of mobile development startups, advertisers and publishers. We would have loved to have a more future focused policy regarding this particular aspect of the budget,” opined Rais in no uncertain terms.
Narayan Murthy Ivaturi, VP (Global Sales & Strategy) at Vserv.mobi also agreed that there is no question that there would be an impact due to the decision to raise service tax while bringing digital advertising under the purview of the service tax. "How much will be the impact is something that we will have to see. There will be an impact in the short term but I don't think in the long term," said Ivaturi.
Speaking about the budget in general, he said that it has served the overall sentiment of the industry. "Effectively, it means that this will be impacted back to the industry. If it (budget proposals) brings in more investors, this means more advertisers for us, which is good. Overall, it is a very industry-friendly budget," he added.
Others like MP Vijay Kumar, CFO of Sify Technologies lauded the government initiatives on Swach Bharat and Make In India as well as the abolition of wealth tax, increase of domestic transfer price from 5 to 20 crore and the proposal to decrease corporate tax from 30 per cent to 25 per cent.
"Having said that, I was looking forward to hearing about the schemes similar to previous year's Digital India. On a scale of 10, I rate this year's budget a solid 7," he said.
'The government's focus on Digital India is a game changing reform. The payments system is broken in India. And the focus of the government on Mobile, biometrics and adding people into the banking systems will form the base of a digital India.' said Siddharth Arora, CEO & Co-founder of ePaisa