Pallav Pradyumn Narang is a Chartered Accountant specializing in the Tax and advisory domains. He currently works as a Partner with Arkay & Arkay, Chartered Accountants, A Tax, Assurance and Advisory firm based out of New Delhi and has previously worked with BMR Advisors and Grant Thronton. He tweets (irregularly) at @thepallav
With effect from 1.4.2012, the service tax levied on specified services shall be at the rate of 12 percent on the value of taxable services, but for a few exceptions:
Before the announcement of the union budget 2012, online advertising was subject to levy of service tax as “Sale of space or time for advertisement” This service was introduced on 01.11.1996 vide Notification No.6/96-ST dt. 31.10.1996.
As per the charging section 65(105) (zzzm), “Taxable service” in relation to “sale of space and time for advertising” means
- Any service provided or to be provided to any person,
- By any other person,
- In relation to sale of space or time for advertisement, in any manner;
- But does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organization.
In layman terms “Sale of space or time for advertisement” includes,-
- Providing space or time, as the case may be, for display, advertising, showcasing of any product or service in video programs, television programs or motion pictures or automated teller machines, mobile phones, or ,importantly, over the internet;
- Selling of time slots on radio or television by a person, other than a broadcasting agency or organization;
- Aerial advertising
In the eyes of the law, “Advertisement” includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas;
Hence, earlier, the selling of space or time for advertisements to be displayed over mobile phones or the Internet was chargeable to service tax under this category at the specified rates.
Budget 2012, the game changer?
Budget 2012 has brought with it a so called “negative list” concept in service tax, and when the finance bill 2012 is ratified by Parliament, all services shall be subject to service tax other than the ones explicitly included in the negative list or notified as exempt services by the government.
The Finance Minister , in his budget 2012 speech, announced that “selling of space or time slots for advertisements other than advertisements broadcast by radio or television” will be included in the negative list and thus will be exempt from the levy of service tax at the rate of 12 per cent. The negative list currently comprises of 17 services and the mega exemption list covers an additional 34 services.
As a consequence the sale of space for advertisement in by mobile operators, VAS providers, websites, blogs etc. on the Internet will be exempt and would not attract any service tax.
However, Services provided by advertising agencies and relating to making or preparation of advertisements would not be covered in this negative list and are still taxable at the enhanced rate of 12%
Given that marketing budgets of companies always take into account the service tax component, there shall now be more money available to be spent on digital media, and an additional Rs 1500 crores (1), which would have been previously paid to the government, could find its way into the hands of suppliers of advertising slots.
(c) Arkay & Arkay, Chartered Accountants. No reader should act on the basis of any statement contained herein without seeking professional advice. The finance bill 2012, is pending parliamentary approval and may undergo substantial changes before ratification.