The Goods and Services Tax (GST) is an indirect tax which will replace the different state and central taxes. It will merge into a single and uniform tax. The main purpose of GST is rationalising the current indirect tax regime to advance economic development and growth. While it will affect all industries differently, there is a unanimous vote by all Indians that GST is better for India’s economy in the longer run.
Some believe that the service industry can come under inflationary pressures and that the GST can make things much more complex, specifically for advertising agencies serving in multi-states because there will be a Central GST and State GST, which might increase the complication rather than easing it out.
At the moment, advertising expenditure is considered as a manufacturing expense that is subject to sales tax and VAT. Thus, no input credit is available and advertisers are incurring huge losses. However, in the post-GST era, expenses incurred on advertising will be available for input credit of 18% on taxes paid on advertisements. This is great news since it will help cut down advertisers’ losses.
Businesses across sectors will benefit on account of a single levy and better claim of input tax credits, which may be used for advertising. Digital advertising will benefit the advertising space as it continues to grow rampant with substantial boost in consumers on digital platforms. There are several great benefits of GST, after its implementation, there will be an ease of starting up new businesses. There will be higher exemptions to the new businesses in the industry and there will a reduction in the logistics cost. Simple taxation is one of the biggest advantage and impacts on the digital marketing industry.
Advertising industry being a part of the services category will not be hit. The service tax is expected to go from 15% to 18%, and hence if a brand was paying Rs 15 as service tax on an expenditure of Rs 100. However, with the new system in place, input credit of 18% would be available on the tax paid on advertising expense, which was not available before. So, this will not make much impact on the expenditure. However, most brands would like to keep their advertising spends intact and not increase the budgets. Initially brands might want to adjust the volume of advertising to manage the ad budgets but eventually it will not affect the ad agencies in the long run. The impact of GST on FMCGs is a positive one. It is a shift from difficult to ease.
It is imperative to be aware of the equalization levy or ‘Google tax’ directed towards foreign multinational digital companies like Facebook, Google, Yahoo, Twitter, etc from June 1st, 2017. The levy may drive up costs for advertisers in the country, with the digital companies expected to pass on the tax cost. The equalization levy may soon be charged on services offered digitally like online collection of payments, website hosting, design and creation of websites, email, blogs, radio and television advertising, online sale of goods and services that include software, movie and song downloads, books and games, and even online consumption of news. This might affect companies selling services like hosting, website development, bulk emails, online advertising, etc
When it comes to social media marketing, Facebook has stated that for advertisers in India, it is necessary to update the business’s Facebook ad account settings with the GST registration number before continuing to advertise on Facebook. However, no GST will be charged to the costs of Facebook Ads. With respect to other social platforms, it will be wise to keep an eye on what their new prices are and when they start levying GST.
Under the pre-GST regime, e-commerce companies were eligible to claim input tax credit of service tax charged on advertisements. Depending on the working capital requirement of e-commerce companies, advertisement budget may increase/decrease. Loss-making companies having accumulated credits could initiate budget curtailment due to cash blockages in credits.
Overall, given a little bit of time GST will benefit the country’s economic development and try to ease all the legal processes and procedures of different industries. It may take a while to adjust to the changes but it will be beneficial in the long run.