The recently announced Budget 2014 introduced a major amendment which would impact the whole Digital Advertising Industry. Prior to 2014, Digital Ads were specifically exempted from the levy of Service Tax and were specifically mentioned in the Negative List of Services.
However, this exemption has now been withdrawn and Digital Ads no more form a part of the Negative List of Services. As this exemption has now been withdrawn, Service Tax on all Digital Ads on Website and Mobiles would be levied @ 12.36%.
At the time of announcement of Budget, the Finance Minister Arun Jaitley said that the date of applicability of levy of Service Tax on Digital Ads would be announced at a later stage.
On 25th Aug 2014, the Service Tax Dept issued an official notification with respect to the Date of Applicability of Service Tax which would be applicable on all Digital Ads on Websites and Mobiles from 1st Oct 2014.
Impact of Levy of Service Tax on Online Industry
With Service Tax now applicable on all Digital Ads, the advertiser would be required to pay Service Tax to the publisher and the publisher will then deposit this Service Tax with the Service Tax Department.
The Service Tax component would also be specifically required to be disclosed in the Invoice. An example of the manner of disclosure in the Invoice has been given below:-
Advertisement Charges Rs. 20,00,000
(Add) Service Tax @ 12.36% Rs. 2,47,200
Total Amount payable Rs. 22,47,200
This amount of Service Tax collected by the publisher of the advertisement would then be required to be deposited with the Service Tax Department.
PS: The Publisher would also be required to apply for Service Tax Registration No. file regular Service Tax Returns and other regular statutory compliances which would result in an increased burden on the Publisher.
Why Service Tax on Digital Ads but not on Print Ads?
The Advertising spends in India on Digital Ads forms a very small portion of the Total Ad Expenditure. But still, the govt has levied Service Tax on Digital Ads and exempted levy of Service Tax on Print Ads (which forms a major portion of the Ad Expenditure).
At a time when the Online Industry was expecting some support from the new Modi Govt., they have levied Service Tax on Online Ads and not on Print Ads which is highly unfair and the Tax regime seems to be tilted in favour of the Print Media.
I’m not against the levy of Service Tax on Online Industry but a level playing field would have been highly appreciated. If the Laws are same for all types of Ads (i.e. Digital/Print/TV/Radio etc.), it would certainly promote a healthy competition which is good for the whole advertisement Industry.
[About the author: This article has been authored by CA Karan Batra from www.charteredclub.com which is an Online Q&A Forum for all your Tax Queries.]