Service tax net to be cast over online ads

The Central Board of Excise and Customs (CBEC) is set to impose the 10.2% service tax on sale of cyber space by websites to advertisers.

The move follows a recent ruling by the Authority for Advance Ruling that Google Online India Pvt. Ltd, the Indian arm of the US-based search engine, is liable to pay service tax while selling space on the Net.

Though the authority is a quasi judicial agency and its ruling is merely binding on the party concerned, revenue department sources said the CBEC now planned to make the authority's opinion a norm and tax all cyber space sale by websites to advertisers.

The turnover of the online advertisement industry in India is estimated to grow over 50% to Rs. 162 crore in 2005-06. This is, however, just about 2% of the size of the total advertisement pie.

Mr.Alok Kejriwal, CEO, contests2win, said, the move would bring in a level-playing field. "Because of the difference in service tax implications earlier, some online publishers would seem less expensive if bought directly rather than being routed though a full media services agency," he said.

Mr.Krishna Kumar, head, Media2win, an online media planning agency, said it would remove the anomalies that existed in the medium. "It brings the online industry on a par with other broadcast medium," he said.

The revenue department sources said, the move would be akin to bringing all advertisement in electronic media, including Internet advertisements, under the tax net.