Equalisation levy on digital ads were introduced in the Indian ‘fiscal budget’ presented on February 29, 2016. From June 1st, an equalisation levy of 6% will have to be deducted by a business entity in India whose aggregate payment in a financial year exceeds INR 1 lakh for specific services to a non-resident service provider. The specified services covered by the levy include online advertising, provision for digital advertising space and any other service to be notified by government.
How does it impact Indian startups
Online marketing is one of the most used form of marketing and is very important for startups because of its comparatively lower cost and targeted customer reach. As we all know that Google and Facebook ads are the most effective platforms as of now, and this levy will affect the small startups rather than the giant-sized Facebooks and Googles of the world.
The startup, who mostly sustain on digital marketing, will now face the burden of ‘extra cost’ from these giants. The equalisation levy would translate into startups ending up paying six percent over the 14.5 percent service tax. Thus, making digital advertisement more expensive for local Indian advertisers. The final cost depends on the negotiation between the startups and online platforms. But this will further financially rip the fund-deficit startups that will have to eventually cut down on their marketing budgets.
Any cut of digital advertising budgets will affect customer acquisition and growth of the company. It is a summarization of an article from Your Story. For more information, visit http://yourstory.com/2016/06/digital-ads