One of the most popular term after Demonetization in India is ‘GST’, Goods and Services Tax, which is an indirect tax applicable throughout India, replacing multiple taxes levied by the central and state governments. This tax is governed by GST Council and the Chairman of GST is the Finance Minister of India. It is considered to be the biggest tax reformation after 70 years of India’s Independence. It was launched in 30th of June, 2017, to be effective from 1st of July, 2017, creating history, forming a legislation that took 17 years to come into effect. GST was initially proposed to reduce the unfair middle system taxes, with unified tax that is planned to dramatically reshape the country’s taxation system and 2 trillion dollar economy.
GST has affected almost every sector across the Nation, and different sectors are having different effect. Since this diversification of effects is levied, the ability to spend on advertisements is also going through diverse impacts. It is too early to predict now as the trends are very dynamic and the opinions of different industries are divided about GST. According to one of the reports, as the cost of creating ads will reduce, it will generate more revenue for the digital marketing industry. Going by the model GST law formed by the Government, expenses incurred on advertising will be available for input credit on taxes paid on advertisements. It is however under current taxation laws, advertising spend is treated as manufacturing expense and no input credit on sales tax and VAT is available. It is observed that the industry is unanimously happy that it will bring transparency in the system which will benefit everybody.
Some of the changes incurred in the digital marketing scenes because of GST are as follows:
The advertising cost in current times is considered to be manufacturing expense, which is subjected to VAT and sales tax. Since there are unavailability of input credit, advertisers were incurring losses. But introduction of GST, has 18% on input credit for advertisement expenses, which will help to reduce the advertisers’ losses significantly.
GST has reduced the cost of advertising as the it has omitted the tax imposed on each and every stage of advertising, i.e. the value added tax of each and every stage. It has helped to eradicate the extra taxes incurred in all the steps of advertising.
As an adverse effect, as the advertising cost decreases, it is reported to increase the advertising spends. It is likely that companies can save a lot through the lower cost of creating creatives. It is predicted that there will be a hike in ad spending of about 10% for the year 2017-28.
Initially the service tax was 15% and there is a hike of 3%, which makes it to 18% after the implication of GST. It might look like a plight for some, but in reality, the mere 3% hit will be of a great impact on advertising spends.
With any new reformation, it is always seen that the big giants always prepares itself beforehand for the blow, and the smaller business takes time observe these changes. These new reformations takes its own time for adoption just like implementation of new strategies and plans.
These new effects will find its course with due time on various industries. Talking about digital marketing scenario, it is necessary to take note of the equalization levy or ‘Google tax’ directed towards foreign multinational digital companies like Facebook, Google, Yahoo, Twitter, etc from June 1st, 2017. While various sectors are either facing serious losses due to the implication of GST, digital marketing agencies in India are seen to be one of the least affected sector. One can also say that digital marketing sector has seen an upsurge due to the implication of GST.
Author Bio: Agam Chaudhary is a marketing consultant, with an extensive experience of over 10 years in the marketing domain. He specializes in digital marketing, marketing trends and strategies and provides valuable insights for the Digitalabs team, an interactive digital agency of repute. Contact him at firstname.lastname@example.org.
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