The Goods and Services Tax (GST) has been rolled out from July 1 and is showing a great impact on the digital marketing industry. GST on online services is the most awaited and single biggest tax reform in India. It aims to rationalize the current scenario of indirect tax regime by providing a stable economic environment favorable for growth and development.
Let us have a glance to see how the digital marketing industry will gain or lose from it.
In the digital marketing industry, Advertising speed is considered as a manufacturing expense i.e. ill subject to sales tax and VAT. Therefore, no input credit is available and thus advertisers are facing huge losses. However, expenses incurred on advertising will be available for input credit of 18% on taxes paid on advertisements in the post-GST (CGST or SGST) era. GST on digital marketing helps to cut down advertiser’s losses.
GST on online marketplaces is essentially a tax only on the value addition at each stage. The flow of tax can be mitigated through the supply chain and thereby reduce the cost of creating an ad.
Spend on Advertising
As costs for advertising will be less, so advertising spends will rise. Digital marketing people or marketers can gain from the lower cost of creating a creative. This helps to increase ad spending by about 10%.
Service tax is going to be set at 18% – that’s 3% higher than what the industry is paying today. The truth is that the 3% hit may not significantly impact on advertising spends.
While bigger brands have prepared themselves for GST, smaller brands may face implementation problems during the initial period.
It is important to note that the equalization levy or ‘Google Tax’ directed towards foreign multinational digital companies such as Google, Facebook, Yahoo, Twitter, and so on. The levy may increase costs for advertisers in the country, with the digital companies expected to pass on the tax cost.
The equalization levy may show the impact on the services offered digitally such as website hosting, online collection of payments, design and creation of websites, email, blogs, radio and television advertising, online sale of electronic goods and services that include software, movie and song downloads, online consumption of news and so on.
Therefore, the implementation of GST on marketplaces may affect companies that sell hosting, bulk emails, website development, online advertising and so on.
Social Media Marketing:
Social media platform, Facebook has stated that for advertisers in India, it is essential to update the business’s Facebook ad account settings with the GST registration number before continuing to advertise on Facebook.
However, no GST will be charged to the costs of Facebook Ads. With respect to other social platforms, it will be wise to keep an eye on what their new prices are and when they start levying GST.
The Final Conviction on GST:
The motto behind GST (Goods and Service Tax) is to drive business under single tax regime from all the freelancers. The revenue department is all set to increase the country’s tax base including freelancers and small business under GST regime.
On the other hand, the lower tax-GDP ratio could certainly improve with the adoption of these new GST frames.