The GST bill was passed in August 2016 and the tax structure for a country like India received a major change which would forever change the way how we paid taxes for the goods and services. According to experts, if GST is implemented properly, there are chances that the taxes will add 2% to the GDP of the nation.
Currently, GST is at a very nascent stage in India and for a country like this with so many services and products, it is only going to be an extremely difficult task to implement. Every business, big or small, will have to bring in certain amount of changes like, valuation, reporting and operations in accordance to the uniform tax rates of GST.
Cutting to the chase and talking specifically about Advertising and media industry, there are going to be certain
changes but they’re going to be extremely beneficial in the long run. Let’s take one sector at a time and bifurcate that to identify the possible pain points, if any.
1. PRINT INDUSTRY: It is not good news for print industry. The companies in India import newsprint and it is not in the list of services to receive any credit or import duty. The tax rate of 18-20% is ideal and it will get clear as details are worked on more. So, what will happen if the Print companies have to pay uniform GST? In that case, the operating profit margin substantially reduces from the current 25% or so. There is going to be a huge challenge for the companies match the credits across different states in the offices. It remains to be seen what happens but the discussions are already ripe with the repercussions of the new bill.
2. ADVERTISING AND MEDIA: The current taxation rates are close to 15%. These rates may increase to the 3rd proposed slab i.e. 18%. The exact figure or the taxation rate is not yet out but it does seem like there are going to be some complications arising as the advertising agencies may have to go through the hassle of State GST and Central GST. A 3% increase may not seem like a lot but then again, a big spender would find it difficult to digest. So, a big spender will wait and watch and will plan more carefully which would eventually pinch an agency but in the end, it will all pan out in the longer run.
3. EVENTS INDUSTRY: There is a positive news for the Events industry. Earlier, there were 2 separate tax rates for the event in any state. Like in Mumbai, it used to be 25% entertainment tax and 15% service tax, which means, almost double the price of the original event cost. With one tax structure, the rates are going to be cheaper which means, event industry is slightly looking better.
The implementation of GST means that there is going to be cost reduction in capital goods and logistics costs. This means, there would be high efficiency in the delivery of services.
So, as the nation grows into a single consumer market, the companies will benefit. When this happens, they are going to spend on national campaigns and in turn have more revenue set for the advertisements. So, overall, this would lead to the growth of the ad agency. Thus, the rate at which the industry will grow is difficult to predict but the growth of the industry looks pretty certain for sure.
To talk more about GST or Advertising or just about anything else over a cup of coffee, Contact us now