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What will be the impact of GST on advertising industry?

30/06/2017   

          Published By : Ruchi Shivhare



On 1st July 2017, Indian marketplace is going to experience an overnight transformation through the implementation of GST. Goods and Services Tax is a new taxation system proposed by Government of India in which all the 7 separate indirect taxes will be integrated into single GST. It will decrease the tax burden on various industries which will ease and support market growth in long term.

 

Although GST is a milestone, it is yet to be conceived and effectuated. We can say that India is going to see an implementation of only a basic GST and a lot more notifications are in the offing. But according to the current reading of the proposed GST, it has a multilevel tax system which has six different rates and it has three types and those are Central GST, State GST and Interstate GST. Canada is the only country in which dual GST has been implemented and now it is going to happen in India. Due to this unpreparedness, dual nature and complex structure of GST; there is a hassle in the Indian market. Businesses are unaware of how to prepare for this transformation but instead, they will have to ride over GST bus overnight.

 

According to IMF and World Bank data, India is the seventh largest economy in the world with a GDP of over 2 trillion USD. India is a country where large-scale companies are small in numbers but small and medium size companies are large in numbers. Over 70% businesses in India are SME and they are the ones who are going to face a problematic situation while adapting to the GST system but once adopted, it is going to benefit them in long term.

 

Let’s have a look at possible impacts of GST over Advertising Industry.

 

Advertising Industry is also going to face many positive and negative challenges after implementation of GST. According to Ernst and Young Report; if there will be an increase in advertising tax rates then it will increase advertising costs for the end consumers. It will lead to increased pressure on advertising budgets for businesses which will be a challenge for advertising companies also to maintain service rates for clients.

 

Agencies may see increased taxes

 

Till now, agencies bear a service tax rate of 15% which is expected to be increased up to 18% after GST. But transactions in agencies are mainly business to business in nature so, agencies can recover it from clients.

 

There is still a confusion of status of agencies in GST. It is not clear if they will be considered as principal companies or agencies. In both cases, tax rates will differ making a complicated situation for agencies.

 

Printing Sector will suffer

 

Till now, printing sector enjoyed a complete service tax exemption. But it is a confusion at present that if it will be continued after GST. If GST imposes a fixed tax on printing, then printing operations will become costly. It will have a negative impact on service costs and margins.

 

At present, newsprints are totally imported by print companies and they are exempted from import duty. So, even if, printing sector gets an exemption from GST, it will still suffer a hike in the cost of newsprint due to GST on the import of newsprints. So, GST will bring a negative impact on print sector in any case.

 

Entertainment industry ads may see a boom

 

Till now, entertainment tax was almost 40% but after GST, there will be a decrease in entertainment tax to an expected 20% which will decrease business operating cost of Cable TV, DTH, multiplex and events. It will create more opportunity and competency in advertisement market for entertainment platforms.

 

So, advertising in the entertainment industry is going to see a growth which is a positive factor of GST.

 

Complex tax return procedures

 

GST will merge multiple indirect taxes into single tax but it is of dual nature. India will have a dual GST system in which there will be two GST: Central GST and State GST. If you do operations in multiple states then you are required to pay one more tax which is Interstate GST.

 

So, Businesses will be required to file two returns per month which will lead to more paperwork and preparation creating issues in operations. Advertising companies with interstate operations will also have to comply with interstate GST.

 

Till now; the value of taxable services or goods is the gross amount charged by service provider but after implementation of GST, transaction value will be considered to be taxed. So, it will be a firm requirement for businesses to maintain right invoice of all goods and services.

 

All these are expectations from GST but the real picture can be explained after implementation of GST and announcement of further notifications. As GST is in developing phase; we hope that authorities will introduce more changes in GST in coming future until it reaches the final stage.

 

At last; GST is a historical step in Indian business market.

 

If we see long-term results, GST is going to cut down business operating costs in Indian market which will further increase their surplus financial credits and growth. Business growth will lead to more advertising spends which will benefit advertising industry in coming future.

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