“Digital ad tax will hurt a fledging industry!” ROTFLMAO

I’ve been hearing quite a few people bemoaning the service tax being levied on digital ads.  It’s going to make people think twice about advertising online; it’s one step back rather than promoting a fledging industry; it’s unfair business practices.

Baloney! Nothings going to happen.

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First, a quick recap of the Negative List.  The Negative List was instituted in 2012 and gave the government the license to tax all service related businesses except the few mentioned on the list.  This was a huge break through at the time because the earlier law allowed service tax on only 120 or so services.  It hasn’t been very effective for a variety of reasons, mainly because most services still aren’t taxed –  the government hasn’t gotten around to classifying industries as ‘service based’ yet –(sigh!).

In the mean time, service tax collections in India have historically been low – about 30% of indirect tax collection annually.  But the services industry accounts for more than 60% of India’s GDP. So there’s a huge opportunity here.  As India’s GDP continues to grow, and the government starts expanding the tax net within the services based businesses, we should be able to see a significant increase in tax revenue from the services sector without actually increasing the level of taxation across the board.  And that’s exactly what this government is trying to do.

The digital ad tax is one part of this expansion exercise.  Mobile and online ads don’t need the protection the negative list provides and I think the government is wise to discover that early.  They’ve realized the immense value of the industry, it’s growth rate potential and future impact and they’re striking early.  No one is going to stop advertising online because of this tax.  They didn’t tax print ads – you know why?  Because it’s a dying industry.  This government will probably last longer than the significance of print ads in India.

On the other hand, no advertiser today can afford to ignore online advertising.  Smart phone users are the fastest growing community in India today.  Internet connectivity is getting cheaper, faster and more readily available.  And as this infrastructure gets cemented, there is no question of the usefulness of digital advertising.

But in case you’re still wondering why they’re useful, here why.

Digital ads are measurable.  You can measure (in detail) the effectiveness of your campaigns.  Digital ads allow for precision marketing – reach the people you need to without irritating the people who don’t care.  Oh, and digital ads are cost effective.  Indian newspapers can charge you thousands of dollars to run a full page ad and advertisers have no idea who’s reading it or if it’s getting read at all.  Digital ads cost hundreds of dollars and have unlimited reach.

Nutshell: digital ads allow for cheap, measureable precision marketing.  Hallelujah! Who’s going to say no to that – no matter how much tax you charge.

 



Sid Talwar

Sid Talwar

Sid is a Partner at Lightbox. Prior to this, he had founded Evolv, an education company, which he sold to NIIT. He's always got a view on the changing dynamics of venture capital industry and current affairs in India. For more new thinking from Lightbox, follow them on twitter @lbvc.