2014-15 Union Budget was presented yesterday by the Finance Minister Arun Jaitley. The first budget under the leadership of Narendra Modi for NDA government has been rationalistic for the various measures that have been drawn.
Modi himself has tweeted that the present budget lies in the parties vision of skilled and digital India.
The Budget is in line with our vision for a skilled & digital India, guided by Mantra of ‘Sabka Saath, Sabka Vikas’ http://t.co/F56IEndhqH
— Narendra Modi (@narendramodi) July 10, 2014
The introduction of 1000 crore fund for the startup community is a big boost but at the same time the budget has suggested to bring back the ghost of service tax for digital advertising. The proposed measure will have online and mobile publishers and advertising networks pay service tax once again, after two years of service tax not being applicable, reports Medianama.
Service tax in India is at 12.36%.
The move was earlier debated by Sudipta Sengupta from MeriNews who states that the latest measure is a death pill for a medium that is still budding in the country. Interestingly, print media advertisers will not have to pay Service Tax.
We asked some of the well-known founders of online publishing sites and this is what they had to say about the new proposed move from the Government of India.
1. Arun Prabhudesai, Founder at Trak.in
In my view, the budget in general was quite encouraging due to its thrust on using technology and digital medium to achieve some long standing goals. However, we were quite surprised to see the re-introduction of service tax on Online and Mobile advertising since both of them are still a growing medium in India and are still in its nascent stage. Also, while the budget announcement has been made, there are some finer details that are still quite unclear.
In terms of direct digital ad sales, the service tax may be charged, but what happens in case of online publishers who depend on third party Ad networks like Adsense. How can ST be charged on that?
These are some of the things that still need clarification.
Apart from this, many web publishers and mobile app developers depend solely on advertising as their revenue. They are already struggling to make decent money through advertising. With service tax burden now being added, they sure are looking at more difficult times ahead.
It’s a big negative for the online media industry which is only taking off. Interestingly, print, which is centuries old industry, has been exempted. This is a protectionist move while a fledgling industry has been punished. The service tax exemption for digital advertising should have continued for some more time.
3. Nikhil Pahwa, Founder at Medianama
The re-introduction of service tax for online advertising is going to significantly hurt, or maybe even kill small publishers, because of the way payments work in the digital industry.
At times, advertisers and agencies pay 5 months (150 days) from the start of the campaign, and advance filing of tax means that we need to keep 4 months of cash in bank in order to pay taxes. On a cumulative basis, it means that if I bill Rs 10 lakh a month, I will need to pay Rs 6.15 lakh as taxes even before the first cheque is deposited. This is over and above the cost of operations, which, for example, might be Rs 8 lakh a month. So the total cash outgo before the first Rs 10 lakh check is deposited is Rs 38.15 lakh.
What it also does is give agencies and advertisers increased leverage in negotiations, since dependency on them for survival increases, which means that they can negotiate further discounts or solicit bribes for paying up. This makes survival very difficult for most startup publications, since, typically, startup publications don’t quite understand the challenges with managing cashflows.
4. Prasanna Singh, COO at Afaqs.com
More than the re-imposition of service tax, the industry will be happier just for consistency in tax treatment of the issue. From being taxed, to being made exempt, and now, taxed again can lead to avoidable confusion, especially in a sector where a majority of the firms happen to be start-ups or have an average age of 5 years of existence and lean accounts teams.
The frequent changes simply indicate a poor appreciation of the industry, its challenges and potential. An odd note of course is the exemption a mature industry like print continues to enjoy.
5. BG Mahesh, Founder at OneIndia.in
Online advertising in India is still in its nascent stage. It needs all the encouragement to grow. It is good to see the govt will be spending on Smart Cities, broadband penetration, etc. Once these plans are in place the market size of online advertising will automatically increase and we in this industry would be more comfortable paying service tax.
If I understand it correctly, as of now, print advertising doesn’t pay service tax. And Print is a far bigger market than online advertising. With the Honorable PM Narendra Modi being a friend and believer of the digital medium we never expected the introduction of service tax.
I hope IAMAI will present the case on our behalf to the Honorable FM and PM.
6. Raju PP, Founder at TechPP.com
I’m no expert when it comes to the budget and service tax coverage. But it shook me when I got to know that they have put back the online and mobile advertising within the service tax regime. The FM kept reiterating this government’s focus on digitalizing India, and at the same time he wants to tax the digital spend which I personally feel is a hasty move.
I’d still need to go through the finer points for clarity on how exactly it affects the advertisers, publishers and middlemen like Google.
7. Manish Chauhan, Founder at Jagoinvestor.com
I think there is nothing wrong in it . Online Advertising is a service and tax should be applicable to it anyways. If we talk about the effect of this, the final money has to come out of the advertiser, so the money which they will spend would be higher, but the revenue for a publisher will not be there, because it has to be passed on to the government.
I think in the start it will look like burden to advertisers, but then over time it will become part of the system like it has become for various other things.
8. Shradha Sharma, Founder at YourStory
Not an encouraging move at all. It’s discouraging for smaller players and entrepreneurs in this space, anyways large chunk of online advertising revenue goes to Google and other bigger media platforms… for upcoming blogs, media platforms this will be detrimental.
Also, there is a general bias in online advertising any which ways, unlike massive brand advertising that happens in west, we are still very regimental about CPM, CTR, etc… which is not necessarily the best way to gauge ROI returns for advertisement. As online media in India, we have to anyways experience so much of biases, produce justifications for every money asked and now on top of it bringing back taxes will be negating the whole effort.
Having said all this, I am a firm believer in the power of online and I believe the way online can reach a brand message today to the target audience is not only very creative and personal but also path-breaking. I would encourage and request traditional advertisers to embrace this medium to see the kind of impact and momentum it builds for their brands.
9. Anshul Tewari, Founder at Youth ki Awaaz
The digital space is extremely nascent in the country, and while it has some big players, the larger part of the market constitutes the smaller players who are extremely high in numbers. This is also one industry which has posed several roadblocks to business models that could otherwise thrive, as is evident from
the way the industry has grown in the US. Levying a service tax at this stage not only makes it difficult for small players to grow, but also makes it tough for them to survive.
Moreover, imposing a tax will also discourage investment in this space. There is a need to encourage investors and make the digital space thrive, as opposed to making it difficult for the space to lure investors and entrepreneurs.
10. Anant Goenka, Head, New Media at Indian Express
It’s good to see the government paying attention to the medium. Yes, we need advertising on digital platforms to be encouraged but I think it’s better we—- as an industry—know the cards we’re dealt at this nascent stage. The internet provides an opportunity for more measured and targeted advertising than any other medium and we must focus on increasing CPM rates, service tax or no service tax.
11. Ram Jalan, VP Digital at Business World
Digital Advertising brought under negative list shouldn’t worry the digital advertising agencies or the consumers. I believe this shows the confidence of the government in the category and bring in more support in terms of funding, incubation centres, special technology zones and more. For an industry that is going at the rate of 30% annually, the new regime should not be taken more than a statutory liability. Of the total advertising spends online advertising is not more than 12% and the service tax will just add another 1 % to the cost.
We should look at it also from the perspective of advertisers having a more measured approach to every penny spent online. This gives advantage to currently small but highly potential online data and analytics start-ups to make their proposition more compelling and get more clients.
Overall, pleased to see start-ups, incubators, digital being part of the union budget agenda, which is expected to give immense boost to the digital start-up culture in India
12. Ashish Sinha, Founder at Next Big What
First, glad to see government using keywords like accelerators/incubators/
I think it is going to hit publishers and small-scale business who have just started knocking the doors of the online world. Government of India should re-consider this.
Do you have a say on the same, then do share with us in the below comments.