How Is the Digital Marketing Scenario Getting Impacted With The Implementation Of GST?
The Goods and Services Tax (GST) is an indirect tax reform that seeks to eliminate barriers between states and provide a uniform structure. In the past, the tax structure varied from one enterprise to another. This has been now modified with a single common tax. This means that all indirect taxes, including Excise tax, VAT and Service tax among others will form into the Goods and Services Tax. GST is impacting a number of industries. When it comes to the digital marketing industry, the implementation of GST is impacting it in the following ways.
Pre GST taxes were collected in several ways. The state and central government levied and collected taxes. The complicated nature of online e-commerce transactions created much disputation and ambiguity. Post GST, the flow of tax will reduce the chaos and the expenses associated with creating ads.
Input Tax Credit
In the past, advertising costs were regarded as a manufacturing expense. The manufacturers were liable to pay VAT and sales tax among other taxes on the purchases they made on raw materials. Input credit was not available. After the implementation of the GST, the suppliers, manufacturers, electronic commerce enterprises and aggregators among others can input credit as they pay tax on the final product. Therefore, the expense has drastically reduced for advertisers.
Since advertising costs have reduced, retailers can put the money they save back into advertising. This will enable them to gain more exposure.
The service tax has increased from 15 percent to 18 percent. Industry bigwigs predict that this increase of 3 percent will not have a huge impact on the market.
A number of questions will continue to arise in the first few months. Content transactions have increased and the process of implementing GST could experience some glitches along the way.
Tremendous growth has been experienced in the digital space and a number of enterprises are accumulating decent earnings through social networking sites such as Twitter, Facebook, and LinkedIn. Many of these enterprises are situated outside India and they are not subject to Indian tax laws. This has created a new challenge to the tax laws. Nonetheless, in the recent budget, the government made the decision to execute an equalization levy at six percent on digital advertisements. It is likely that this feature will be extended gradually to cover all the services that Indian consumers use from online nonresident sellers and retailers.
This equalization levy will impact all the services that are offered digitally. This may include website designing, email services, web hosting, blogs, media advertising, online news portals and software downloads among others. Meanwhile, Facebook requires advertisers in India to update their Facebook accounts with their GST registration number before continuing to advertise on this leading social media platform. Other social networking sites may also come up with a similar policy.
GST is still in its early days. Agencies and brand owners should wait and watch how the new tax reforms are impacting businesses. Changes are usually not accepted easily, but GST will enhance the Indian tax system and structure. The digital marketing companies and online enterprises will gain from the implementation of GST.
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