The taxation process for the advertising agencies can get complicated with the implementation of a new tax regime under GST. Some even believe that the service industry can come under inflationary pressures and that it may actually make things much more complicated, particularly for advertising agencies operating in multi states because there will be a Central GST and State GST, which may increase the complexity rather than ease it.
The Goods and Services Tax (GST) regime is just a few months away and the debate around its impact on various sectors is getting shrill again. Under the GST regime, the entire concept of taxing services will get changed. Seen as the biggest tax reform in India, GST will subsume most of the indirect taxes.
According to Saumin Shah, CFO, Hungama Digital Media Entertainment, the implementation of a new tax order will benefit businesses across sectors and lead to more ad spends. “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 said.
While the overall ad spends will continue to grow after GST gets implemented, in-film and in-cinema advertising may face a challenging time due to continued high tax rates. The Finance Ministry, in a statement, has stated that services by way of admission to entertainment events or cinematography films in cinema theatres will attract 28% GST with effect from July 1.
Speaking about the GST announcement, Rahul Puri, MD of Mukta Arts said, “It is disappointing to see that the exhibition business will see no reduction in entertainment tax. I think the industry had hoped that a lower taxation rate would spur more investment into screens to really boost the industry. Sadly, I think the government has seen the business of a Bahubali and decided perhaps that films can be a lucrative revenue stream. Whereas the consistent tax rate is a good initiative and theatres in the North and in the very important state of Maharashtra may be happier with a slight reduction, overall it’s a disappointment.”
“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. GST has its own complexities for businesses operating in multi-states, as there will be Central and State GST. Further, online matching of sales and purchases filed by the clients and vendors will make it operationally more complex. However, the benefits will outweigh the disadvantages,” added Shah.
It’s not just the advertisers who are getting ready for the new tax system. Major FMCG companies are also changing production strategies and offering discounts as they brace for the new tax system. Most of them see GST as a step that will benefit the economy and the industry in the long run. A research report by Motilal Oswal Financial Services said with the implementation of GST, many companies in the FMCG sector will likely gain as a result of the potential shift from the unorganised to the organised segment, which will have a positive impact on the advertising sector.
Speaking about the impact of GST on FMCG and advertising sectors, Harish Bijoor, Brand Expert and Founder, Harish Bijoor Consults stated, “The impact of GST on FMCG is a positive one. It is a move from complexity to simplicity. A much needed one. Finally it is here! Well-nigh! As for advertising, clients will end up spending more with the regime of tax moving from 15% to 18%. Fortunately for the category, it is not on the demerits list. Wonder how long it will take for advertising to move to the highest category of all, with cess added. Hopefully, never. Overall, I do believe that GST is great for the country and the economy at large. If the economy does well, advertising will do well as well.”