GST: Ushering of an Era in Advertising, Digital and Printing Industries
The goods and services tax (GST) is hailed as India’s single biggest tax reform and its application has changed the composition, costs and contingency plans of all industries and sectors in India. The effect of GST on advertising, digital and print industries are largely positive in nature. However, there are some sections of these industries that have been negatively hit.
The transparency and clear-cut tax amendments, however, has brought all these products and services to a platform where quality of services is the biggest contributing factor in survival and growth of the product manufacturers and service providers. Therefore, even if there are some sections that have been set afire, in general, the application of one and one-time tax has improved the condition of advertising, digital and printing industries.
Here are the perspectives for each industry on application of the GST.
According to a recent Ernest & Young (EY) report, GST has positively hit the advertising industry, especially for sectors such as FMCG, Consumer Durables, Automobiles, Retail and Jewelry.
The FMCG, Retail and Consumer Durable sectors, being able to avail complete input tax credit, would see the costs of advertising going down. This is also applicable to automobile industries that also did not have the opportunity to avail the input tax credit in the pre-GST regime.
The savings in logistics and distribution costs will reduce the operational cost of these companies and hence an increase in advertising spending is expected. Depending on the types of commerce, the advertising spending of traders in the above mentioned sectors will increase the maximum by 15%.
However, the petroleum, BFSI and Alcohol segments are going to be hit negatively by the GST. For the petroleum industry, the partial availability of input tax credit will hurt its spending. The BFSI segment would see a reversal of application of input tax credit, thereby increasing their effective taxes. The alcohol and tobacco industries will have to pay more taxes for advertising in the GST-regime.
However, most of the Indian companies are likely to plow in extra profits, which according to one report will boost overall ad spends by around 10 percent, or over Rs 5,000 crore. That is good news for advertising agencies.
Like advertising, the digital agencies are also going to see mixed results in their overall market. However, the overall result is positive as the GST considers input tax credit on total ad spends, so these digital industries are going to see most sectors spending more to avail increased credits.
The loss making ecommerce players, however, will be negatively affected as the increase in print and non-print advertisement will increase the accumulated input tax credit. Loss making e-commerce companies, having accumulated credit balances due to huge advertisement spending, would see the accumulated credit increase in GST-regime due to an increase in the rate of tax on print and non-print advertisements.
When the spending is considered tax-wise, the IT sector will be profited. The current average tax rate on IT products and services is around 25–35% which will come down to around 18–25%. So, there will be a huge and positive impact of GST on IT firms. The firms offering digital services, which fall under the IT sector, will therefore see a growth in profit and earnings.
A contemporary estimate of market value of digital industry by the year 2021 is around $299 billion, and $12.5 billion is the share of the Indian Market. This is a huge growth for the digital economy. Considering all aspects of the GST, we can easily forecast that “achhe din” are coming to the digital industry.
The seamless flow of input tax credit would also benefit the printing industry which gets the working capital blocked due to accumulated and large CENVAT Credit balances. GST would also remove cost inefficiencies incurred due to the current plethora of central and state taxes, such as Central Sales Tax, Local Taxes and the Interstate Taxes.
The competitiveness of the printing industry in terms of costs of printing would also improve as the unification of various fragmented domestic market segments along with the reduced costs in case of tax compliance, inventory and logistics will provide more cash to increase the efficiency of the players in print industry.
The GST-regime will consider imports as supplies in inter-state trade or commerce which will be subject to only the Basic Custom Duty plus IGST (Integrated GST). The application of full input tax credit on such IGST will improve the earnings of print industry players.
The newspaper and magazines are excluded from taxes; therefore they will see a growth in terms of earning. According to the GST Council, all these necessities would be taxed at zero percent which will increase the cash in hand and hence these sectors would see an increased base of revenues.
GST has brought a far reaching impact virtually on all parameters of supply chain operations including contractual agreements, pricing, supply models, information technology, human resource, and tax compliances, etc. The real impact of GST on the advertising, digital and print industries could be assessed after a certain period as most of these companies usually operate depending on many of the mentioned services and industry sectors.
The overall and one single tax is however a measure to simplify the otherwise complex taxing mechanism and hence, it will definitely reduce the accounting and taxation required to stay abreast of the rules and regulations imposed on the companies in the mentioned industry sectors. Therefore, the GST is often taken as a positive measure in unifying the advertising, digital and printing industries.
At the end of the day, for the advertising, digital and print sectors, the gains are more profound than the loopholes in the GST-regime.
HSN code or Harmonized System Nomenclature code number is an internationally adopted commodity description and coding system developed by the World Customs Organization (WCO). HSN code is used by more than 200 countries as a basis for their customs tariffs. Currently, over 98% of the merchandise in international trade is classified under HSN code With the HSN code acting as a universal classification for goods, the Indian Government has decided to adopt the use of HSN code for classification of goods under GST and levy of GST.
There is a list of HSN codes for services:-
HSN Codes for Services
|1||4909||Printed or illustrated postcards; printed|
cards bearing personal greet-ings, messages
or announcements, whether or
not illustrated, with or without envelopes
|2||4910||Calendars of any kind, printed, including|
|3||4911||Other printed matter, including printed|
pictures and photographs; such as
Trade advertising material, Commercial
catalogues and the like, printed Posters,
Commercial catalogues, Printed inlay
cards, Pic-tures, designs and photographs,
Plan and drawings for architectural
engineering, industrial, commercial,
topographical or similar purpos-es
reproduced with the aid of computer or
any other devices
|4||4902||Newspapers, journals and periodicals,|
whether or not illustrated or containing
|5||998313||Information technology (IT) consulting and support services|