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The Impact of GST from an Advertising Agency's standpoint!

Aug 07, 2018

India’s most revolutionary tax regimes broke at the stroke of 30th June 2017 midnight. The advent of GST (Goods and Services Tax) has changed the entire business game. The Ad industry initially was roaming only on negligible tax rates. With increased digital Ad expenditures and rising competitions from potential newcomers, advertising has been seeing an entirely new dimension in the last few years. Let us take a look at how the advertising industry growing severalfold has taken up GST.

The advertising industry is a unique type of industry. It depends a lot on other industries unlike a lot of others which are more independent. Irrespective of the kind of business, the advertising industry supports all other industries in one or the other way for their growth. Over the last few years, lots of advertising agencies have sprung up and it is because of them that competition among businesses has widened, the market has become more animated and most importantly customers are now more educated about brands, products and services than ever before.

The digital advertising industry has tremendous growth potential and is expected to touch the Rs 300 billion mark pretty soon. However, the entry of GST in the Indian economy has provided an entirely new trajectory. Ad agencies come under the service sector which is liable to pay 18%.  But who will pay this additional cost? On a general note, since brands are the receivers of these services, the burden would definitely be on them as they will be subjected to higher fees from the advertising agencies. However, sectors like banking, finance, education, hospitality, e-commerce and fashion can never shy away from promotion and image building activities. For Non-Profit Organisations finding it tough to categories the way their charitable events are segregated in terms of GST, a renowned event management agency can bring in a lot of value. Fashion is a booming industry. However, a fashionista finds it tough to break the shackles and appear victorious because of the increased competition. Add GST to that and you are seeing a very difficult picture. This is a situation where the best PR and Media company can mean a lot. They know what the industry is like and they will find ways to create a special privilege for fashionistas. Even though advertising has become an inevitable factor in their business functioning, it is not wise from the advertising agency’s part to play hard on the pricing part.

The advertising agencies in India will now find it very difficult to work the pricing bit. They need to price their services in such a way that it creates no major negative impact. This puts advertising agencies in a more tricky situation as they will have to face challenges from different dimensions. Competition and pricing are the two main issues faced by advertising agencies and GST has added fuel to the ongoing fire.

However, there is one brighter side to this argument. Digital advertising is growing at a brisk rate of 14 per cent per annum in India. After GST, the overall Ad share of the digital media is set to touch 24 per cent by 2020, which is more than the contributions prior to GST era. Statistics also suggest that by 2022, there will be more than 800 million smartphone users in India alone. With the unprecedented growth of social media and other online means of advertising, companies are never going to shy away from online marketing. A GST of 5% on print media and 18% on Digital Advertising isn’t going to have a whole-hearted impact on advertising agencies in terms of their approach to marketing. As long as digital advertising remains as a smart and cost-effective solution, companies are surely going to go in search of an advertising agency in India. And we working along the lines of being “ Digital India”, can by no means overlook digital advertising and what that means is that advertising agencies automatically dive into the picture!

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