NEW DELHI: Though many marketers are worried about the impact of India's fast-approaching GST roll-out on consumer purchases, new research indicates ad spend may be boosted as a result.
According to research by the Kotak Mutual Trust, companies are likely to benefit from lower ad cost under the new GST regime, which is set to roll out in July, and reinvest the savings into more advertising.
The Economic Times reports that the profit margin of many companies may increase due to the way advertising will be taxed under the new GST laws. An anti-profiteering clause under GST will force companies to pass on any higher profits from the new tax regime to customers or increase their spending.
The report predicts that to keep margins constant and comply with the anti-profiteering clause), companies could boost overall adspend by up to 10%, on top of projected 10-12% growth this year.
Indian tax experts agree that the changes are likely to benefit the advertising sector, which has dealt with a wealth of huge changes in the past 12 months including demonetization initiatives in late 2016.
"Under the current taxation laws, input credit on sales tax and VAT is not available as it's not considered as manufacturing expense," said Sachin Menon, national head of indirect tax at KPMG India, in comments to The Economic Times.
"Under GST, however, input credit of 18% would be available even on tax paid on the advertising expense, this would mean companies would have larger advertising budgets," he said.
Data sourced from The Economic Times; additional content by WARC staff