Impact of GST on Digital Marketing companies

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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 value-added tax applied on good and services across the whole nation. The government of India has divided GST into three types viz. SGST (State GST), CGST (Central GST), and IGST (Integrated GST). In addition, there are two categories under GST viz. Intra-state movement of goods and Inter-state movement of goods. SGST and CGST come under the Intra-state movement of goods and IGST comes under the Inter-state movement of goods.

The various tax like VAT, Central Excise, service tax, etc. will fall under one tax 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 comes 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.

  1. The advertising industry will struggle with this 3% rise and have to adjust this somewhere. They have to choose if they would get this recovered from clients by increasing the rates of services or adjust it will their production cost.
  2. Social media marketing and various digital services offered by companies will have to increase their costs because Google will also charge accordingly. With this, expenses of the creation of ad are decreased and ad spend is increased.
  3. Pre-GST era advertising spend was considered as manufacturing expense which came under sales tax and VAT, but now this will be available for input credit which will help decrease advertisers expenses.
  4. In the initial stages, small digital agencies may incur a loss and large agencies may have already sorted out a solution for this.
  5. ‘Google tax’ had an impact of GST and these taxes are directed towards multinational digital agencies like Facebook, Twitter, Yahoo, etc. this tax has charged on services offered digitally like web hosting, online payments, the creation of websites, emails, soft wares, books, and games, etc. This change in costs has affected various digital companies that provide hosting services and other digital services. Though Facebook has stated that GST will not be charged to the costs of Facebook ads, it is still necessary to edit your business page and update GST registration number.
  6. The IT sector also comes under 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
  7. 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. Additionally as said before, Facebook will not be charging GST on Facebook ads.

There are some tips that you can implement like finding solutions to adjust the 3% rise, hire an in-house creative team to save that cost, etc.

Service sectors, FMCG companies, E-commerce, and Automobile industries would invest more on digital marketing spends which would benefit the industry. Basically, whenever there is any change implemented there are pros and cons to it. GST is a huge change that has incurred in our economy and it definitely has its effects and impact. The digital industry has surely gained from this regime. Initially, there will be problems but it will only conclude to the growth of the company and of the economy.

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