As the implementation of the goods and service tax (GST) nears, several industries are in a scramble to understand how it will impact their industry, and especially their businesses. While various industries may have a positive or negative impact due to GST rollout from July 1, one industry that depends on the good performance of all other sectors is the advertising space.
A recent EY report highlighted the impact of GST on the ad spends of different industries in India. While sectors such as FMCG, consumer durables and retail will be highly positive for the industry, sectors such as petroleum, e-commerce, banking and finance services, alcohol, government organisations will reduce their ad spends, said the report.
Ashish Shah, founder and CEO, Vertoz, said, “The levy of GST will have diverse impacts across sectors, and this could impact their ability to spend on advertising. The implementation of a new tax order will benefit businesses across sectors and lead to more ad spends. The advertisement sector will be subject to higher tax, which will move from the current 15% to 18% under the GST regime, leading to brands ending up paying more. So there is a clearly three percent hit. This is the only difference that it will make to the advertising industry as there will more tax levied on.”
“However, with the new system in place, input credit of 18% would be available for the tax paid on advertising expense, which was not available before. So, this will not make much impact on the spends.”
The report said, “FMCG advertisers will be able to advertise more in the same budget as the cost of advertising will reduce.”
Even large advertiser automobiles will see a positive impact on the advertising industry due to GST. Besides this, auto companies engaged in importing completely built units (CBUs) would now benefit from availing full input tax credit. This would lead to automobile companies spending more in their advertising budget.
However, e-commerce, which has emerged as a top ad spender over the last two years, will see a negative impact due to GST.
“However, loss making e-commerce companies having accumulated credit balances on account of huge advertisement spends would be negatively impacted as accumulated credit would increase in GST on account of increase in rate of tax on print and non-print advertisements,” it said.
For banks and financial services firms, “they will be able to advertise less in the same budget, as effective cost of advertising will increase under GST regime.”
Alcohol brands too may reduce their ad budgets. “Alcohol companies will advertise less in the same budget, on account of increased cost of advertising,” it said.
Retailers will be eligible to claim full input tax credit on advertising spends. “Retail advertisers will be able to advertise more in the same budget as the cost of advertising will reduce,” it said.
The biggest impact will be on the petroleum industry. “Entire tax charged under GST to petroleum companies to be an increased cost. Thus, effective sales budget could reduce to the extent of tax cost. Petroleum companies will advertise considerably less in the same budget, on account of increased cost of advertising,” it said.
Saurabh Mishra, digital marketing head, Kestone IMS, said that media buying activities will suffer a major impact on account of GST as this is where the major tax component and agencies bill their clients according to the media spend. The tax will move higher for the advertising industry from the current 15% to now 18% under GST. “This means that we will have to get higher budgets from brands and advertisers for them to get the same level of impact and reach for a particular campaign. Which means more working capital needs to be the hands of agencies,” he said.
...& ANALYSIS
- Media buying activities will have a major impact as agencies bill their clients according to the media spend
- Agencies will have to get higher budgets from brands to create the required effect for campaign
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