The country’s greatest indirect tax reform in history, the goods and services tax (GST), is expected to give a boost to the overall economy, but it may especially give a leg-up to the digital and broadcast media.
As per the model GST law tabled by the government, expenses incurred on advertising will be available for input tax credit on taxes paid on advertisements.
Under current taxation laws, advertising spend is treated as manufacturing expense and no input credit on sales tax and VAT is available.
“The reason why such benefit would be available [under GST] is that [currently] while service tax applicable on advertisement is a central tax, VAT is a state tax. Credit of central tax against state taxes is not allowed,” Priyajit Ghosh, partner indirect tax, KPMG, told Moneycontrol.
Companies are likely to plow extra profits back into advertising, which according to one report boost overall ad spends by around 10 percent, or over Rs 5,000 crore.
There is, however, one catch: Due to GST’s ‘anti-profiteering’ clause, firms may have to pass on extra profit to consumers.
“The anti-profiteering provision requires companies to reduce prices to the extent of the credit that they are benefitted,” Ghosh said.
Economists also believe that rollout of the GST may add to GDP growth by 1-2 percentage points.
During boom phases, ad spend outgrows GDP by 1.5-2 times, according to a report by advertising weekly Impact.
This means that a fillip to economic growth thanks to GST will also help the digital media in the medium term.
Source : Money Control