The new Government’s maiden Budget proposal to levy service tax for online and mobile advertising has not gone down well with media agencies.

Zafar Rais, CEO, MindShift Interactive, a digital marketing solutions company, said the move would adversely affect the online industry’s growth.

``It reflects differentiated treatment, as traditional print media remains unaffected with respect to the tax purview, but new digital media, that is actually driving innovation, will have to unfortunately bear the brunt,'' Rais said in a statement.

Stating that currently, India’s exponential mobile penetration and app consumption patterns were driving the growth of the mobile advertising industry, Rais said the development could hamper innovation efforts of the entire ecosystem. The latter comprises mobile development startups, advertisers and publishers.

Last year, online and mobile publishers and advertising networks were subject to service tax once again, after two years of nil service tax. Online and mobile advertising were included in the `negative list' for service tax in April 2012. Last year, it was removed, and has already negatively impacted advertising budgets. Service tax in India is at 12.36 per cent.

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