GST@e4m Guest Column: Impact of GST on Digital Advertising: Nitin Gupta, Xapads Media

Guest Column: Impact of GST on Digital Advertising: Nitin Gupta, Xapads Media

Author | Nitin Gupta | Wednesday, Jul 26,2017 8:25 AM

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Guest Column: Impact of GST on Digital Advertising: Nitin Gupta, Xapads Media

A joint study KPMG and CII reveals that digital advertising industry in India is growing at 33.5 percent (CAGR) and in the next three years, it will be Rs. 255 billion plus industry. But, will GST obstruct the growth? Before reaching to any conclusion, it is advisable to understand the importance of the industry in a growing economy like India.

Significance of Advertising in the Business World

Irrespective of the nature of the business, advertising industry supports all other industries in their growth and promotion. It creates competition among businesses, makes the market more animated and customers more educated about top brands. Eventually, when a business doesn’t invest adequately in advertising it fails in competition; moves slowly in the market competitive and loses customers’ attention. Hence whatever be the economic scenario advertising will always remain essential for the success of brands.

How GST is going to affect the Advertising Cost

According to the latest report by Ernest & Young (EY), industries like FMCG, Automobile, and Consumer Durables will be able to advertise more due to GST at their current advertising budget because companies would enjoy full input tax credit. Whereas, there is also a long list of industries, including oil & gas, banking, logistics, and education to whom advertising will be more expensive than ever. The rise of service tax from 15 percent to 18 percent is, of course, a matter of concern for many industries which are unable to attract any incentive. Also, due to a drastic change in the taxation process, advertising industry that operates from multiple locations can experience some unwanted hiccups in first few quarters under the changed tax regime as they have to maintain both Central GST and State GST.

Ad Agencies come under service sector which is liable to pay extra 3 percent tax under the GST regime, i.e., 18 percent instead of 15 percent. Who will bear this extra burden? As brands are the receivers of these services so the burden would evidently shift to them and they will subject to pay higher fees to their agencies. Industries which are offered to avail Input Credit can somehow minimise the impact of 3 percent increase in service tax, but for rest of the others, it may discourage their advertising plans. The overall impact would be negative as to ensure the same level of reach and impact for a particular ad campaign on traditional media; businesses shall be compelled to set higher budgets after the implementation of GST. On the other hand, digital advertising is blessed with more advanced and less expensive advertising tools and media that enable agencies in controlling the cost to a great extent.

Every Cloud has a Silver Lining

While increased tax burden on sectors like e-commerce, banking and finance services, logistics, oil & gas, education, power & utility, hospitality and many others can negatively influence ad budgets of thousands of companies. These brands cannot compromise with promotion and image building activities, but making them more costly is not a worthy decision. So, for intelligent marketers, it’s time to switch onto the more impactful and highly cost effective alternative – i.e., digital advertising. Running an ad campaign on digital platforms always saves money. The recent study of Kotak Mutual Fund also claims that organisations which are capable of creating a creative at reduced cost would enjoy additional 10 percent spending on advertisements due to lower production cost.

Digital Advertising is emerging like a Messiah

Digital advertising is growing at a rate of 14 percent per annum in India, and in 2016-17, it has joined the club of $1 billion or above industries. After GST, the overall ad share of the digital media is expected to reach 24 percent by 2020, means 100 percent more (double) to its contribution in the Pre-GST era. Besides having the edge over TV and Print Media on the basis of more interactive and engaging content, advertising on a digital platform is highly cost effective and calculative as well. India is celebrating a digital revolution, and by 2022 there will be more than 800 million smartphone users in the country. Moreover, the unprecedented growth of social media, native advertising, content marketing and programmatic is luring both customers and marketers towards digital advertising.

Digital Advertising is Ready to Balance the Equation

Being the part of service industry advertising sector has pay 3 percent extra tax, and those larger firms which operate from multiple locations cannot avoid the complexities resulted from SGST, CGST, and IGST, at least for first few months. As a result, traditional advertising will be more expensive for businesses. Digital Advertising can play a counterbalancing act in this direction as it is equipped with smart and cost effective solutions. So, to rationalise their budgets and advertising goals, business should opt for digital advertising, which is the future of the industry.

(The author is Founder and CEO of Xapads Media)
Disclaimer: The views expressed here are solely those of the author and do not in any way represent the views of exchange4media.com

 

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