With the end of the most awaited Budget’2014 speech, the Finance Minister Arun Jaitley made some important announcement for the media & entertainment advertising as well as the digital sector. Now, the Service tax has been extended to selling of space or time slots for advertisements on online and mobile platforms, after two years of no service tax being applicable.

Budget 2012 which had brought with it so called “negative list” concept in service tax, made selling of space or time slots for advertisements other than advertisements broadcast by radio or television, exempt from the levy of service tax at the rate of 12 per cent. Thus, the sale of space for advertisement in by mobile operators, VAS providers, websites, blogs etc. on the internet was exempt and not liable to any service tax.

Budget’2014 has removed online and mobile advertisement from the “negative list” and now the same has been bought within the purview of service tax@12.36%. This can negatively impact   advertising budgets, since a part of the outlay will be allocated to taxes.

The specific paragraph from the Budget speech in relation to the same:

“To broaden the tax base in Service Tax, it is necessary to prune the negative list and exemptions to the extent possible. Accordingly, the negative list has been reviewed and service tax leviable 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. Sale of space for advertisements in print media however would remain excluded from service tax.”

This step taken by the Finance Minister, Arun Jaitley may prove to be a setback for the advertisement industry and companies who avail such services and get advertisement done online and through mobile. This is the only bad news announced by the Finance Minister in his Budget for start-ups and this could bring about a negative impact on e-commerce.