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Thinking aloud.

The impact of GST on the Indian advertising industry

June 28, 2017

The Indian government is all set to bring in Goods and Services Tax (GST) in few days from now. It is being regarded as the biggest tax reform the country will ever witness. GST is said to be levied at multiple rates ranging from 0% to 28%. The GST council has finalised a four-tier GST tax structure of 5%, 12%, 18% and 28%. Lower rates will be levied for essential goods while higher rates for luxury items and demerit goods will also attract additional costs.

The sentiments associated with this tax reform are plenty. Industry leaders are busy evaluating how much they will gain or lose from it. However, it is expected that they advertising industry will be subjected to higher service tax which will move up from 15% to 18%. This means that brands may end up paying more as part of the service tax.

The advertising industry is speculating as to how they will be hit by GST. A report published by Kotak Mutual Funds pointed that GST will lead to an additional volume of media spends as it will reduce the cost of creating an ad. It will increase the ad spend by about 10% or more than 5,000 crore.

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As per the GST model put forward by the government, expenses incurred on advertising will be available for input credit on taxes paid on advertisements.

Before the onset of the biggest tax reform, industry leaders are speculating that it will simplify as well as complicate life. The number of tax reforms a company will have to file also increases subsequently.

All said and done, GST on the advertising industry is a positive sign. It will be good for the industry and the economy. Whenever the economy does well, advertising does better. The hiccups and the slowdown will be temporary.

It is generally observed that if the GDP grows by 8%, advertising grows by 12%. Until the government rolls out GST, there will be a clear wait and watch period. Brands and advertising agencies will have to try and understand the new policy and then accordingly fine tune themselves to it.

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