GST impact on ad spend: positive for FMCG, auto; negative for e-comm firms, say reports–Business Line–26.06.2017

The levy of GST will improve the ability of corporates to spend on advertising, according to a recent report by Kotak Mutual Fund.

The report said GST could reduce the cost of advertisement and lead to an increase in spending by firms intent on promoting their products.

Companies that gain from the lower cost could plough back the money in advertising, thereby increasing their ad spend by about 10 per cent.

An EY report, meanwhile, says automotive, FMCG and consumer durables firms are also set to advertise more due to GST. E-commerce and banking and financial services companies, on the other hand, are set to see a negative impact. Petroleum companies are slated to see the biggest impact on ad spends due to GST, the EY report adds.

An analysis conducted by EY to understand how GST will impact advertising across industries showed that sectors like real estate, telecom and insurance are not expected to see any significant difference.

The agency has pointed out that in terms of types of commerce, the ad budgets of traders are set to increase the most, by 15 per cent, since in GST, traders are bound to get full credit of the tax charged on the ad.

At present, credit of service tax at 14 per cent, Swachh Bharat Cess at 0.5 per cent and Krishi Kalyan Cess at 0.5 per cent is not available. With GST, traders will get full credit of the tax (either at 5 per cent on print ads or 18 per cent on non-print ads).

The EY report notes that e-commerce, which had emerged as a top ad spender over the last two years, is bound to register a negative impact due to GST.

Right now, e-commerce companies are eligible to claim input tax credit of service tax charged on advertisements.

However, loss making e-commerce companies having accumulated credit balances on account of huge ad spends are set to be negatively impacted, as accumulated credit would increase in GST on account of increase in rate of tax on print and non-print advertisements.
(This article was published on June 25, 2017)

via GST impact on ad spend: positive for FMCG, auto; negative for e-comm firms, say reports | Business Line

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