Ad-spends see minor short-term decline due to GST

As July draws to a close, we take a look at how marketers reacted to the new tax regime

e4m by Venkata Susmita Biswas
Updated: Aug 1, 2017 7:33 AM

The Goods and Services Tax has been uniformly seen by marketers and their counterparts in advertising agencies, media agencies, etc. as the ‘Good Tax’. But the implementation of the Good Tax has led to some marketers tightening purse strings, and demanding agencies to make-do within the set budgetary constraints without actually increasing ad spend to account for GST. As the month of July draws to a close, we take a look at how marketers reacted to the new tax regime.


When GST kicked in on July 1, some sales teams of broadcast networks were fielding calls from unprepared marketers who wanted to rejig their plans to account for the new tax regime. But this was restricted to a small fraction of marketers who were seen as responding to the impending development a little too late. “Some clients have not completely transitioned to GST and have not taken into account the incremental spending. This has led to clients stalling their ad-spends for a while. But clients who were prepared are still gung-ho about advertising,” said a senior sales executive at a broadcasting network. The sales executive added that clients have to fall in line soon because of the upcoming festive season when advertising cannot be compromised. 


Some agencies have noticed a minor decline in ad-spends in July, but felt that this is a knee-jerk reaction to the implementation of GST. “We have seen a 10–12% decline in ad-spends in July,” said the CEO of a leading digital agency based in New Delhi. Recognising this decline, Neena Dasgupta, CEO and Director, Zirca Digital Solutions, said that this is a result of clients settling down and getting adjusted to the new regime. These glitches will be short-lived, say experts. “Everyone is currently in a wait-and-watch phase. Things will get clearer in three months,” said Paritosh Srivastava, COO, Publicis Ambience. Dasgupta said that she does not expect this phase to last for long or impact ad spends.


Over the last month, marketers who had already frozen their advertising budgets for the year went back to their agencies with requests to account for GST within the set budget. “Marketers must understand that we cannot absorb the tax cut in the budgets they have given us. They will have to account for the incremental 3% due to GST,” said a sales executive at a leading digital agency on the condition of anonymity. Speaking about the budgetary constraints, Anita Nayyar, CEO, Havas Media Group, said that since budgets are frozen, there is no scope for any incrementals. “So, one has to absorb all these taxes. This is what we did when the change in service tax was implemented. The clients will absorb the tax cuts. The 3% pressure will come on the advertising spends for some time but in the long run, this is for the good,” she said.


The unpreparedness of a few marketers has perplexed some but Nayyar says that the unpreparedness stems from the long-drawn course that GST has taken. “Some people were expecting GST to be implemented in September. GST has been coming for three years now and some did not know if it would really happen this year,” she said. 


Allaying any fears of reduced ad spends due to the implementation of GST, Sanjiv Mehta, CEO and MD, Hindustan Unilever Limited, said that GST has no direct impact on ad spends since marketers are eligible for Input Credit on tax paid by the company on purchases.

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