GST and its impact on advertising
Monday August 28, 2017,
3 min Read
GST is already on the minds of everyone working in marketing and advertising. There have been many changes in the field of marketing over the last few years, with increased digital ad expenditures and concurrent competition stemming from lower-priced brands. The advent of GST has now changed the game ever so slightly. The ad space industry previously roamed on negligible tax for many years as it was nascent and unavailable for scale. With the industry growing double digits for a few years now, the tax system has arrived, and to mixed reviews.
Infrastructure or necessity industries are expected to increase their ad-spends owing to the balancing nature of ad-spends and revenue generation and tax benefits. There will be a short rise of five to six percent across the board in the FMCG, key services, and basic amenities-focused startups/industries.
Ad agencies can expect an 18 percent rise from 15 percent earlier on to produce results with slightly smaller budgets. What this will entail in the short term is miniscule. However, in the long run, brands will try to negotiate their way into smaller ad-fees, typically in the 12 to 15 percent range for projects less than one crore.
Luxury brands and products that are taxed higher in the current GST programme will see a decrease in ad spends owing to the margins being reduced as well as the direct impact of customer sensitivity driving spends down. There are already many shakeups in these industries, and hopefully with the season spends from October to December, diversification of spends will see a rise as well.
As Ashish Bhasin, Chairman & CEO, South Asia, Dentsu Aegis Network tells Advertising Age, “The benefit will be that the clients will have easy flow of goods, so there will be efficiencies in their business as well as some clients who were not able to get full set of the service tax, now they will be able to get. What will depend upon is also the final rate applicable? Now, service tax goes up to around 15%. The slab for our industry is not clear yet. If it falls in 12%, it will be good, if 18% then there will be bigger hit.”
Also, multi-crore businesses that have been set up in a tax-free zone will have to pay more for existing domains. This in turn will impact how the advertising industry will be able to service these accounts.
According to a recent EY report on the impact of GST, there are two solid industries that are the clear winners in the GST’s rollout and impact on the advertising space. Agencies handling these accounts are going to benefit from next month around
Saumin Shah, CFO of Hungama Digital Media Entertainment is optimistic about the transition. He states that there will be a positive impact on the overall ad space arena due to the simplification of the tax-code, the reduction of inefficiencies, and the greater role of governance with frequent monitoring and following code.
“The expected growth in India’s GDP by over 8% on the back of efficiencies coming out of GST roll out will lead to increase in advertising spends, with a greater pie for digital advertising. Businesses across sectors will be benefited on account of a single levy and better claim of Input tax credits, which may be ploughed back into advertising. Digital advertising will benefit the most in the overall advertising space as it continues to grow exponentially with massive increase in consumers on digital platforms,” he tells Exchange 4 Media.
Also read: Waking up to a new GST era, and its impact on small businesses in India