The Finance Minister Arun Jaitley has proposed to reintroduce service tax on online and mobile advertisements in a move that has evoked mixed reactions from industry players.

“The negative list has been reviewed and service tax levied currently, on sale of space or time for advertisements in broadcast media, is being extended to cover such sales on other segments like online and mobile advertising,” Jaitley said in the Budget speech, adding that the move would help broaden the service tax base.

Two years ago, such advertisements were put under the so-called negative list that specifies services under which no tax was payable. Industry players were expecting that the exemption would continue for at least 3-5 years, as is normally the case. Sale of space for advertisements in print media, however, would continue to remain excluded from the service tax ambit.

Service tax in India is at 12.36 per cent. Terming the move as an ‘unpleasant surprise’, the Internet and Mobile Association of India (IAMAI) said the announcement is a big dampener, not only for the digital medium, but for the industry as a whole.

“Through this communication, we appeal to the Finance Minister to withdraw the announcement at the earliest,” said Subho Ray, President, IAMAI.

Zafar Rais, CEO, MindShift Interactive, said that digital, web and social media agencies would be negatively impacted if the proposal gets implemented.

“Online advertising industry is still in its nascent stage. The rates of the online advertisement space are very less as compared to outdoor or print, yet they have a massive reach. Thus, this rise may not pinch as much,” said Manu Agarwal, founder of naaptol.com,

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