The ruling Bharatiya Janata Party in its election manifesto earlier this year had stated its commitment to make every Indian digitally empowered. In its maiden Budget, the government has tried to live up to this commitment by allocating Rs 500 crore for the National Rural Internet and Technology Mission, through which it plans to expand the broadband reach in the rural areas of the country.
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While the online industry is delighted at the government's digital intent, they are also disappointed with the 12.6 per cent hike in service tax on online and mobile advertising. "I find it bit of a contradiction," says Neeraj Roy, MD and CEO, Hungama Digital Media. "I don't understand what will be achieved by imposing service tax on an industry which generates spends of just $700 million in an industry that is worth $ 6.5 billion."
Anil S. Nair, CEO and Managing Partner, L&K Saatchi & Saatchi, says that the outcome of the service tax hike would be a temporary dip in banner ads. "The spends would move to social media which is unlikely to be charged service tax."
Rajiv Dingra, CEO and Lead Consultant, WatConsult, a digital marketing agency, says that the 12.6 per cent increase in service tax is a killer for the advertising industry. "At a time when online and mobile advertising is growing, the service tax hike is definitely detrimental."
But will a service tax hike lead to a dip in online and mobile advertising, an industry which is growing at 30 to 40 per cent year-on-year? Internet is too important for advertisers to ignore, say the heads of these digital marketing and communications companies. "All we are expecting is a temporary dip, that too only in banner advertising," says Nair of L&K Saatchi & Saatchi.