The re-introduction of service tax on online and mobile advertising, in the 2014 Budget, has caused great discontent in the Indian e-commerce industry, which has adopted a wait and watch strategy.

Hitesh Oberoi, CEO , Naukri.com said, "It would have been encouraging for the industry, had the tax holiday continued a little longer like other sectors including software industry. We have loads of small clients advertising on our platform who will now have to shell out more, which will call for renegotiation or fall in frequency of advertisements because budgets have to be maintained."

"Our industry is new and yet to stablise. None of the ecommerce companies are profitable till today. Government should play the role of an enabler for our industry that holds the future." said Praveen Sinha, Co-founder and MD of Jabong.com. He further adds, "We have a huge member base and as a policy, we don't want outsiders to leverage from our platform. We do negotiations with members while deciding on commissions that include branding."

Radhika Ghai Aggarwal, Co-Founder & CMO, Shopclues, said "Online is a powerful medium, more agile and cost-effective and all industry sectors are experimenting with it. Since it is not yet as organised as broadcast media, margins are very variable. Service tax might pinch some clients but given the popularity of the online medium, it is not likely to make a long-lasting impact on the ad business."

Back in 2012-13, online and mobile adverts were added to the negative list of service tax, thereby exempting the medium from tax. According to Internet and Mobile Association of India (IAMAI), the online advertising market in India is estimated to be over Rs3000 crore, with a growth rate of 35 per cent. The digital media spent has steadily been increasing from slightly over 1 per cent of total ad spent in 2005 to nearly 10 per cent in 2013.

Dr. Subho Ray, president of IAMAI comments, "We have not looked at exemption of service tax as a competitive advantage over broadcast media, but as a growth tool for the nascent online and mobile advertising industry. The share of advertising on mobile and social media is expected to go up whereas spending on display and email will decline due to this shift." 

E-commerce bigwigs believe that in the long run factors like service tax will not hurt their business.  "Mobile penetration is already way higher than banking or internet in the country, so there is immense potential in online and mobile space, which if captured rightly will give infinite volumes. So, for us our marketing mix won't change and will keep focus on digital platforms." says Hitesh Oberoi, CEO , Naukri.com.

Source: (The Economic Times)