Corporate tax cut gives digital advertising industry hopes of better times ahead

Industry leaders say the reduction in corporate tax is expected to push in more liquidity in the market, which will lead to higher ad spends

by Shikha Paliwal
Published - Sep 24, 2019 8:44 AM Updated: Sep 24, 2019 8:51 AM

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The year began on a positive note for the digital advertising sector, with the DAN-e4m digital advertising report predicting a compound annual growth rate (CAGR) of 31.96 per cent to reach Rs 24,920 crore by 2021. The sector also had a good run with three back-to-back big ticket events, IPL, General elections and the Cricket World Cup. However, the euphoria seemed to have been short lived as the economy took a turn for the worse and the GDP growth rate slipped to 5 per cent in the April-June quarter 2019, the lowest in six years.

Dismal sales by the auto sector, a severe liquidity crunch, high GST rates and sluggish growth reported by several sectors led to the fears of tightening of the purse strings. The advertising industry’s fears, it seemed, were not unfounded given the fact that marketing and advertising budgets are typically areas that bear the first blow of budget cuts.

Though industry experts were expecting traditional advertising formats to be impacted the most, digital advertising too was believed to feel the heat sooner or later.

The intermittent booster shots for the economy just didn’t seem to be doing enough. However, with Finance Minister Nirmala Sitharaman now announcing a sharp corporate tax cut, from 34.94 per cent to 25.17 per cent, the mood seems to have lifted for the business and advertising community alike.

With the corporate tax cuts expected to push in more liquidity in the market, the advertising sector is hopeful that the lacklustre growth that plagued the industry will now take a turn for the better. exchange4media spoke to several experts from the digital ad industry to get a sense of the sentiment, post the tax cut. Not surprisingly it was a unanimous thumbs up.

According to Shamsuddin Jasani, Group MD, Isobar South Asia, “This is a very welcome move from the government which will have great effect on business. Though I feel that the true effect will only be felt in one or two quarters. It augurs well for our industry and I do see ad spends going up.”

The digital ecosystem in India is at its peak, and the evolution of digital advertising as the fastest growing advertising format is almost a forgone conclusion. In fact, the DAN-e4m report states how the rapid increase in the penetration of mobile devices and internet had led to 47 per cent of digital media spends on mobile devices. And it is expected to grow at CAGR of 49 per cent to reach spends share of 67 per cent by 2021. Despite the fact that all factors that could boost the digital medium seemed to be in place, an economy which seemed to be dragging its feet was a cause of concern. If the Indian business community was cautious, any medium, whether TV, print or digital, had reasons to be nervous too. However, with the corporates hailing the tax cut as a bold step to boost investments and increase liquidity, digital stakeholders too are hopeful that this will be a sign of things to come.  

Explains Vishal Chinchankar, Chief Digital Officer, Madison World, “This is an extremely encouraging move by the government and it will lead to a sound economic growth. The reduction in tax will mean higher cash flows for the industry, and this could prove to be a catalyst in healthier advertising, especially digital medium that may see a spur in times to come."

In an interesting observation, Hareesh Tibrewala, Joint CEO of Mirum India believes that while one can definitely expect more liquidity back in the markets, tightening of budgets can also lead to brands turning towards digital advertising.

“Marketing budgets are the first thing that go out of the window in the event of budget freezes and economic slowdowns. Which is pretty much what the entire advertising industry has been facing for the past few months. The reduction in corporate taxes, announced last week, should certainly help reverse the trend and put money in the pocket of brands, to invest in communication,” he said.

“Having said that, I also believe that tight budgets may result in brand investing more monies on digital, given that digital has lower spend thresholds and can generate quick short term leads and sales opportunities,” Tibrewala adds.

Krish Ramnani, Co-founder and Director of Technology and Innovation, Togglehead, says one can expect to see the positive impact of the tax cuts on the upcoming festive season.

“The reduction in corporate taxes not only means more liquidity in the entire system but would also pave the way to an increased inflow for the media sector. With this slash in taxes, the market sentiment of consumerism would increase, thereby pushing brands to promote their product/service to capitalise on the same. And while this may see an upbeat in the advertising industry on the whole, since this reform has come just before the festive season. I wouldn't be surprised to see a short term impact on the coming festive season for advertisers to capture the sentiment,” he says.

On their part, brands say while any move by the government to bolster the economy is a welcome one, they will continue to choose the medium that brings them the best returns for their investments.

Aman Dhall, Head of Communications, Policybazaar, says, “I don’t think it changes the equation for us. Corporate tax cuts or not, we are always efficiency driven. The channels that have provided us efficiency is where we have spent our money. Therefore, brands will continue to spend on the mediums where they get the best ROIs for their business. For advertisers, the priority will remain efficient ad spends that show clear results for business growth.” 

As the story of digital advertising continues to unfold post the tax cuts, stakeholders are hopeful that the growth predictions for the digital landscape will continue to remain positive going ahead.

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