Impact of GST on Digital Marketing companies
Many of you are already aware of the new tax system that has been introduced by our Prime Minister Narendra Modi
This is one of the biggest reforms done in the economy called GST i.e. Good and Service Tax that came into working from 1st July 2017.
It has both benefitted the economy as well as put many organizations in tension.
Before we know how GST has affected the digital marketing sector, let us know more about GST.
What GST actually is?
Under the name “One nation, one tax” this new regime replaces all the other taxes and is a single tax applied to Good and Services across the whole nation.
In addition, there are two categories under GST, they are:
- Intra-State GST
- Inter-State GST
SGST and CGST come under Intra-State GST and Integrated GST comes under Inter-State GST.
The Government of India has divided GST into three types they are:
- SGST (State Goods and Service Tax)
- CGST (Central Goods and Service Tax)
- IGST (Integrated Goods and Service Tax)
The various taxes like VAT, Central Sales Tax (CST), Service Tax, etc will fall under one Tax i.e GST.
This regime has a lot of advantages and has also bought damages to many companies, depending on the product you sell or service you provide.
The GST council has introduced 5 slots of tax that are:
0%, 5%, 12%, 18% and 28%
The advertising and Digital sector come under the service industry and therefore the tax has increased by 3% from 15% to 18%.
Let us look how this recent Tax system has affected the Digital industry.
- The advertising industry has struggled with 3% rise and they had to adjust this somewhere.
They have chosen that if they would get this recovered from clients by increasing the rates of services or adjust their profit margin.
- Social media marketing and various digital services offered by companies have increased their costs because the social platform has also charged accordingly.
As in the previous one, taxation levied at each stage, but as GST with no cascading effect, expenses of the creation of ad were decreased and ad spend was increased for the companies.
Back then, most of the agencies were confused, about how they will be charged for Adwords by Google and by Facebook on Facebook Ads.
Good news is – Facebook has not charged us as per the GST, as their invoice is generated by Dublin, Ireland.
But still, it is necessary to edit your business page and update GST registration number.
- Pre-GST era advertising spend was considered as no input credit system expense which came under Sales Tax and VAT.
But now this was available for input credit which helped decrease advertisers expenses.
Let’s take one example, Imagine 1 person has availed a service of Rs.500, with 18% of GST Tax Include with it (i.e. Rs.90) so, he has to pay the total amount of Rs. 590.
But one can take input credit of Rs.90 which is a claim from Indian Government.
Let’s talk about IT sector:
IT sector also comes from the Digital area.
The Tax applied for software’s pre-GST was around 25-28% which has come down to 18%
Therefore, this sector had a huge impact and definitely benefitted from the GST regime and has given them a relief.
The most beneficiary industry has been the Digital Marketing industry since people prefer spending on paid ads that are cost-effective and can target audience specifically.
As per the above graph is given, there is always a rise for the Internet subscribers in India.
Also, Jio has bought telecom internet revolution, due to which it has crossed to other developed countries as well.
Because of GST, SEO and Social Media have been in great demand.
But there is a saying,
‘’Rome was not built in a day’’
It was predicted that Digital Marketing Industries will be in demand, but it will take some time.
Google AdWords now has its own demands, however, many companies have now started investing in Social Media stages, according to some percentage taken from PPC budget.
Who will Invest in Digital Marketing company?
- Advertisement spends has gone up in FMCG organizations. It might create more ads in the online medium. Because the cost of making an advertisement will go down.
- One of the real spenders on promotions, the Automobile industry has been doubtlessly expanding their budget and no doubt will invest in Social Media Platform as Video.
Important Things the Companies did:
- Updated the GSTIN number.
- Adjusted 3% Service tax increase.
- Hired own in-house creative team.
There are upsides and downsides to each change and basically everything.
The change was not accepted easily by anyone and GST is additionally one of those change.
This change brought some improvement in the Tax system.
Digital Marketing is having a good effect on the execution of GST.