If you advertise using Google Adwords in India, you will have a surprise when your bill is generated. If you spend Rs.10,000 in ads, you will be charged with 14% service tax on top of it. So your total bill becomes Rs.11,400.
You pay 14% service tax (Rs.1,400 on Rs.10,000) because online advertising is a service and falls under the service tax umbrella. Before the recent union budget, online advertising was exempted from service tax.
Earlier the service tax used to be 12.36%. My recent Adwords bills still show only 12.36% service tax but it will soon be revised to 14%. So on a bill of Rs.25,000 I am paying additional Rs.3,070 as taxes.
The service tax component is not visible in the dashboard. You may be thinking that you are paying only Rs.5 per click and Rs.100 per lead, but you are actually paying 14% more. The tax component is visible only in the billing area.
Is it fair to pay service tax?
I am not happy to pay service tax when I am running a business. If I spend Rs.10,000 in online advertising and make only Rs.7,000, my loss is Rs.3,000.
When I am in a loss, I do not need to pay income taxes. I am already losing. But even if I am in a loss, I have to pay tax on the spending which is 14% on the Rs.10,000! So instead of losing Rs.3,000 I will be losing Rs.4,400!
Service tax exists to discourage spending so that people save and invest more. But service tax should be exempted for businesses because without investing money one cannot make a profit. Business expenses are investments and they are not ‘consumption’.
This 14% service tax is for all the online advertising spends. All the other networks also charge this tax and the tax is the burden of the buyer of services – not the seller.
What is your opinion about service tax on online advertising? Do you think it is fair?